Memorandum: Cost-Benefit of Paid Sick Leave in Portland

To: Members of the Portland City Council

From: James Myall, Policy Analyst, Maine Center for Economic Policy
Updated: April 16, 2018

Background

The Maine Center for Economic Policy (MECEP) was asked by the Southern Maine Workers Center to conduct a cost-
benefit analysis of Portland’s proposed paid sick leave ordinance. There follows a summary of MECEP’s findings.

MECEP analyzed the impact of Portland’s proposed paid sick leave policy on employer costs through additional wages,
offset by increased productivity and reduced turnover. Also included are estimates for economic multiplier effects
through increased wages for employees benefitting from the new policy, as well as increased state and local revenues.
This is not a comprehensive analysis of the economic impact of the paid sick leave policy on Portland government,
businesses and workers, but it provides an estimate of the most significant impacts.

Context

Paid sick leave provides significant economic benefits to workers, employers, and the economy writ large. Workers with
access to paid leave are healthier, more productive, and less likely to leave their jobs for health reasons. As a result,
while a citywide paid sick leave policy would immediately cause some employers to incur news costs in the form of
additional wages, these costs would be more than offset by gains in employee productivity and the reduction in
turnover-associated training costs.

This is proven by the experiences of other cities and states:

• In Connecticut, the first state with a statewide paid sick leave law, three quarters of businesses supported the
law one year after implementation, and most (86%) reported no abuse of the law.1
• In New York City, 85% of employers reported no net increase in costs due after the implementation of a
citywide paid leave policy.2

In addition to mitigating factors such as reduced turnover and increased productivity, experience in states with paid sick
leave show that employers mitigate the expense of providing paid sick leave by adapting their response to worker
absences. In Connecticut, for example, three out of four of employers were able to make up for absences by reassigning
work to other employees or switching workers’ shifts – incurring no extra expenses beyond the absent employee’s
regular wages.3

Costs for employers are also less than is often expected because workers rarely use their full allotment of sick days. In
Connecticut, the average number of days used annually was four (of a possible five),4 in New York City, 4.6 of a
maximum of eight.5

While some of the offsetting benefits outlined below are indirect and less tangible for employers than wage costs, there
are further intangible benefits not calculated in this analysis. A 2015 national survey found that half of all food industry
workers go to work while sick, raising a very real risk to public health, and legal liabilities for organizations.6

1
Analysis

Impact on Employers Annual cost (benefit)

Additional wages $7,400,000

Reduced turnover ($16,400,000)

Improved productivity ($10,800,000)
Reduced workplace injures See below

Net impact ($19,800,000)

Impact on Citywide Economy

Additional economic output ($2,000,000)

Impact on City Revenues

Additional property taxes ($140,000)
Additional vehicle excise taxes ($7,000)
Reduced general assistance spending unknown

Impact on State Revenues

Additional state taxes ($381,000)
Reduced spending on health care unknown

Methodology

Employees benefitting from new ordinance

Full time, full-year Part time or part-year Total

Total employed workers 40,400 26,800 67,200
Currently without paid 8,400 10,600 19,000
leave

Sources: MECEP analysis of US Census Bureau, American Community Survey, 2012-16 5-year estimate; US Bureau of
Labor Statistics, National Compensation Survey, 2016; Maine Department of Labor; Quarterly Census of Employment and
Wages, 2016. Totals may not equal sums due to rounding.

2
Annual wage cost for employers

The total annual wage cost @ $22.96 / hour = $514,000,000.7

Employer cost for 6 paid sick days per year = 1.6% of employee salary.8
Total estimated wage cost = $7,400,000 annually

Note: Most workers impacted by the new paid leave ordinance will not qualify for the full six days of paid leave annually.
Numbers are adjusted accordingly. $22.96 is the mean hourly wage for the Portland-South Portland metropolitan area.9
Since low-wage workers are most likely to lack paid leave under existing arrangements, this likely overstates the real
wage cost to employers.

Reduced turnover benefit

Retraining costs for low-wage (less than $35,000 / year) workers = 16% of annual salary10
Reduced rate of turnover in firms with paid leave = 25%11
Total benefit from lower turnover = $16,400,000 annually

Improved productivity benefit

Lost productivity of present workers through poor health = 1.32 hours per worker per year12
Paid sick leave effect on reducing length of illness = 36%, or 0.48 hours per worker per year13
Total benefit from increased productivity = $10,800,000 annually.

Reduced workplace injuries benefit

Paid sick leave reduction in workplace injuries = 28%14

Full-time equivalent of affected employees = 13,70015
Current rate of occupational injuries in Maine = 4.8 per 100 FTEs16
Total number of accidents prevented through paid sick leave = 185 annually

Impact on citywide economy

Calculated using IMPLAN economic modelling software. Includes the benefits from more wages in the pockets of
primarily low-income workers.

Total additional economic activity = $2,000,000 annually

Impacts on state and local taxes

Calculated using the IMPLAN software.

City taxes = $153,000

State taxes = $381,000.

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Notes

1
Eileen Applebaum et al., “Good For Business?
Connecticut’s Paid Sick Leave Law,” Center for Economic and Policy Research, 2014. Available at http://cepr.net/documents/good-
for-buisness-2014-02-21.pdf
2
Eileen Applebaum et al., “No Big Deal: The Impact of New York City’s Paid Sick
Days Law on Employers”, Center for Economic and Policy Research, 2016. Available at http://cepr.net/images/stories/reports/nyc-
paid-sick-days-2016-09.pdf
3
Applebaum 2014.
4
Ibid.
5
Applebaum 2016.
6
“Survey: Half Of Food Workers Go To Work Sick Because They Have To,” National Public Radio, Oct 19, 2015. Available at
https://www.npr.org/sections/thesalt/2015/10/19/449213511/survey-half-of-food-workers-go-to-work-sick-because-they-have-to
7
MECEP analysis of US Bureau of Labor Statistics, Occupational Employment Survey, 2016. The mean hourly wage for the Portland-
South Portland Metropolitan area of $22.96 / hour was used.
8
MECEP analysis of US Bureau of Labor Statistics, National Compensation Survey, 2016 data. Total employer cost after adjusting for
availability of paid leave.
9
National Compensation Survey, 2016; US Bureau of Labor Statistics, Occupational Employment Survey, 2016.
10
Heather Boushay & Sarah Jane Glynn, “There Are Significant Business Costs to Replacing Employees”, Center for American
Progress, November 16, 2002. Available at https://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf
11
Hill, H. D. (2013 April, 9). “Paid Sick Leave and Job Stability,” Work and Occupations, 40(2), 143-173.
12
Walter Stewart et al, “Lost Productive Work Time Costs From Health Conditions in the United States: Results From the American
Productivity Audit,” Journal of Occupational and Environmental Medicine, 45(2), December 2013. Available at
http://www.nationalpartnership.org/research-library/work-family/psd/lost-productive-work-time-american-productivity-audit.pdf
Human Impact Partners and San Francisco Department of Public Health. A Health Impact Assessment of the Healthy Families Act of
2009. Oakland, California. June 2009. Available at http://www.pewtrusts.org/en/~/media/assets/external-sites/health-impact-
project/federalpaidsickdays.pdf
14
Abay Asfaw et al, “Paid Sick Leave and Nonfatal Occupational Injuries,” American Journal of Public Health, 102(9), September
2012. Available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3482022/
15
MECEP analysis of US Census Bureau, American Community Survey, 2012-16 5-year estimate
16
MECEP analysis of US Bureau of Labor Statistics, 2016 data.