Corporate Governance

Social Responsibility, Profit Maximization, and Sick Leave

By J. Robert Brown

NPR ran earlier in the week about an ordinance adopted in San Francisco requiring businesses to provide sick leave for their employees.  An audio version of the story is here.  This should be viewed in the context of a story indicating that half of all workers in the US do not get sick leave, with low wage workers particularly at risk.  That story can be found here.

In the NPR story, reporters interviewed some merchants in San Francisco who confessed that they had opposed the new requirements (one hour of sick leave for every 30 hours of work) because of the anticipated costs involved but, in fact, admitted that from their experience the practice had not been abused.  The story also included an interview with someone from the Chamber of Commerce who, while not criticizing the requirement, complained that it was another cost imposed on business.

Providing sick leave does add a potential cost.  But at the same time, it provides a serious benefit.  In particular, those in low paying jobs can be assured that their pay will continue and not need to come to work when they are sick, something that no doubt impairs productivity and, in the case of illnesses that are contagious, may affect other employees.  Moreover, employees with accumulated sick leave may not turnover as often, another high cost for employers of low wage workers.

This is not an employment law blog.  The question is this.  To the extent that the benefits of this regulatory requirement appear to outweigh the costs, what is it about the market and profit maximization that necessitated government intervention?  We have written occasionally about social responsibility, generally focusing on the public welfare.  Another part of that is the treatment of employees.  It may be a truism but spending more on employees is in the best interests of shareholders.  Yet sometimes this simple profit maximizing rule gets lost, necessitating regulatory intervention. 

Full post as published by The Race to the Bottom on March 03, 2008 (boomark / email).