Economics of contagion

We can all be glad that swine flu is looking likely to top out at quite contagious rather than quite contagious and incredibly lethal. That’s some good luck, in no small part because America isn’t terribly well equipped to deal with contagious infections. In Contagion Nation, the Center for Economic and Policy Research lays out one of the reasons: Unlike most every developed country, America doesn’t guarantee its workers paid sick days. As such, workers who think they might be getting sick frequently come to work anyway. They can’t afford to forgo the day’s paycheck. And then they get everyone else sick, too…. “The U.S. is the only country among 22 countries ranked highly in terms of economic and human development that does not guarantee that workers receive paid sick days or paid sick leave,” write the authors. “Under current U.S. labor law, employers are not required to provide short-term paid sick days or longer-term paid sick leave.” This following graph tells the story well. Click for a larger version. … CEPR ends with the economic argument: “Each year millions of American workers go to work sick, lowering their own productivity and that of their coworkers and potentially spreading illness to their coworkers and customers.” I’m willing to cut employers some slack: Many don’t offer paid sick days because they don’t think doing so will make them money. That is to say, they make marginally more money by letting their workers fall ill. That may be a good decision for the employer. But it’s not good for the worker. And it’s an appalling state of affairs. Residents of the world’s richest nation should be able to stay home when they have the flu.

Contagion Nation If getting other employees sick is terrible, why would firms want sick employees at work? Surely it must be that the private costs exceed the benefits. European welfare states have made sick days into just another entitlement to more vacation, and employees thing little using sick days because they don’t feel like working on Monday or Friday. This all is at enormous expense to productivity and efficiency (When Work Ethic Disapears). Enacting a national employer funded sick policy is the economic version of the stupid and expensive security policies to combat terrorism. That is, a permanent and expensive change in the way we organize our economy in exchange for a unknown and probably small benefit on a contingency that may never occur. Employees should bear the majority of lost labor wages due to illness risk because that is the only way to get them to reveal their true productivity and health. Having employees purchase disability insurance is the way to catch those with the bad luck to have an illness that compromises their ability to work. If, as Mr Klein agrees, the private benefits of keeping people working when sick are larger than the private costs, then this really isn’t an employer issue at all. A fair government policy would have the federal government pay for the benefits of keeping people at home. One possibility is to take money out of your social security account to pay for current sick days. You would probably want to discount those benefits to account for the time value of money since social security benefits are paid out many years later. Since sick people probably die sooner, this would be a fair way of giving people with shorter life expectancy a larger share of the social security benefits. On the other hand, if you are faking it, by taking the money out of social security you really just harm yourself later. With the right interest rate / penalty on sickness withdrawals you could cut down on shirking. A vastly simpler system that addresses Mr. Klein’s specific problem of our labor policy on infection transmission is simply to set up a special fund to pay lost wages to sick people who experience epidemic illness. The government could simply announce that they would pay the lost wage costs of staying home when infectious to anyone showing the right antibodies. That wouldn’t require a complete change of economic policy.”