The Press Enterprise, June 10, 2007

Earlier this year, a group of senators sponsored the Healthy Families Act, a bill requiring businesses with 15 or more workers to provide at least seven paid sick days per year. It sounds good, but forcing employers to provide these benefits is a mistake.

The bill, not the first of its kind, would be yet another government regulation on businesses, making it a legal requirement to provide employees with a benefit they may not already receive. Those who are intended to gain the most from added employment benefits, such as health insurance, are those most vulnerable to being harmed by the government's requirement to provide them.

Requiring benefits for all employees, where a benefit did not previously exist, increases the cost of maintaining each employee. These added costs must be offset, and businesses will evaluate a number of different options for lowering employee costs. The most likely option is a reduction in hours or wages, bringing down the cost per employee to a point closer to the pre-benefit level and shifting the added costs to employees.

But for those workers already earning the minimum wage, or close to it, cutting wages to offset costs completely isn't possible. These workers may find themselves not only without a new benefit, but also unemployed. This is an unfortunate consequence that many economists acknowledge.

The extent of the employment loss will vary based on a number of factors, such as the added cost of the benefit and the amount workers earn, but analysis shows that it will be felt most severely in industries such as restaurants that employ many low-wage earners.

'Overinsured'

A better option than expanding coverage is reducing health-care costs, making it more affordable for those who need it. Passing on the costs to businesses harms the poor, who are uninsured at a rate twice that of the national average. America also has a population that can be considered "overinsured."

These people use more health services than they need because their coverage, often through employer-provided plans, encourages them to take advantage of it. Overuse increases prices for everyone and makes coverage less affordable for the poor.

These harmful unintended consequences aren't limited to employer-provided health insurance. There are harmful, anti-worker consequences to other supposed benefits as well.

Consider California's law pushed by former Gov. Gray Davis that makes it mandatory for employers to pay overtime -- meaning time and a half -- for every hour worked above eight hours per day, not just above 40 hours per week. California's overtime law discourages employers from offering workers flexible schedules.

Let's say a worker cannot work Fridays or would prefer not to do so. Before the overtime law, a full-time worker might be able to arrange with his or her employer to work four 10-hour workdays, rather than five eight-hour workdays. But with the state's overtime law, this arrangement ends up costing employers a lot more. Automatically, 20 percent of the employee's regular work time is subject to overtime pay.

The law, while well-intentioned, is too inflexible. Like other mandated employer-provided benefits, it prevents employers and employees from coming together to make mutually acceptable agreements that leave both better off.

Mandated benefits and regulations such as employer-provided health insurance and California's overtime law hurt small businesses most. A report by the Small Business Association found that the annual cost to small businesses of federally mandated benefits was $21.5 billion in 2004.

This translates to a cost per employee nearly 10 percent higher for small businesses, which make up 99.7 percent of employer firms, than larger businesses.

Misguided Bills

According to the same association, small businesses have been responsible for 60 percent to 80 percent of job growth in the last decade. Discouraging small business growth by handicapping them with higher costs is bad for everyone.

Currently, there are two bills moving through the state Legislature that would handicap businesses, AB 537 and SB 727. Both bills would require protected time off -- as much as 12 weeks in the case of AB 537 -- to care for a broad definition of family. SB 727 would require paid leave for six weeks.

The adverse effect of such policies should serve as a wake-up call to lawmakers. When it comes to government intervention in employer-provided benefits, less is more.