Paid family leave

One of the ways that we can reduce income inequality would be to provide for paid family and medical leave. The Family and Medical Leave Act (FMLA) which was passed in 1993 provides up to 12 weeks of leave.  This law only applies to companies with more than 50 employees and doesn’t actually give employees a chance to recover their wages.  Moreover, only about 60% of workers are covered by FMLA establishments.   It is up to the employers if they will provide paid leave to their employees.  According to the Department of Labor, published in 2013, in the employee benefits survey only 12% of workers have access to paid family leave.

A national paid leave law would provide employees to earn a portion of their pay while they take time to address a serious health condition, care for a family member with a serious health condition, and care for a newborn, newly adopted child or newly-placed foster child. According to National Partnership for Women and Families, a serious health condition is one that requires either inpatient care or continuing treatment by a health care provider.  Continuing with National Partnership for Women and Families, usually payment for these types of programs are either by join employer-employee contributions or solely by employee contributions and the funds are paid to a special insurance system where funds are disbursed. As Cohn notes in The New Republic, the paid family leave is typically set up in a similar fashion to unemployment or disability insurance where the money is taken out via a payroll tax and is then withdrawn when you need it.

California passed a paid family leave law in 2004.  The law is similar to other government social insurance funds, such as disability or unemployment and would provide up to six weeks of paid leave at up to 55% of an employee’s earnings.  While it is a good program, I did not take advantage of it while I was in California as even 55% of my wages while I was there when my daughter was born would not have been enough to support my family.  In a survey conducted by the Center for Economic Policy and Research, 89% of businesses said they felt the law either had a positive or no noticeable effect.  Further, they found that 87% of employers reported that the state’s paid family leave program resulted in no cost increases.  The researchers wrote “fears expressed by opponents of the program that PFL would create a heavy burden on the state’s employers even report reduction in costs and improvements in productivity or profitability.”  In a report from the White House Counsel of Economic Advisers, they found that 90% of California employers reported no noticeable or a positive effect on on profitability, turnover, and morale.

Jonathan Cohn writes in The New Republic that businesses actually like to offer paid family leave and it makes more sense to begin to offer it contrary to what some conservative politicians argue.   Google announced that it was extending paid leave for its employees by several weeks.  The White House Counsel of Economic Advisers in their report on paid leave found that 2/3 of human resource managers called family-supportive policies including flexible schedules as the single most important factor in attracting and retaining employees.  And in that same report 90% of respondent employers characterized their family-friendly policies as cost-effective.  In a report written by Linda Houser and Thomas Vartanian titled Pay Matters: The Positive Economic Impacts of Paid Family Leave for Families, Businesses and the Public they studied the economic impacts of paid leave compared to the effects of unpaid leave or no leave.  Houser and Vartanian had a number of interesting findings in their paper.  Women who report taking paid leave are more likely to be working 9 to 12 months after a child’s birth than are those who report taking no leave at all.

The reason that it makes more business sense is that, as Houser and Vartanian find, employees have stronger labor force attachment after returning from leave.  Betsey Stevenson, a member of the president’s Council of Economic Advisers, suggested “women who are offered maternity leave are more likely to return to the same firm, and many women who would not have otherwise returned to work re-enter the labor force within a year.”  As Cohn notes, numerous studies have shown that offering paid leave tends to improve retention.  This is very important, in the same report from the White House Council of Economic advisers found that the median cost of replacing an employee was 21% of that employee’s annual salary.  What’s more is that an employee absenteeism due to work-family responsibilities cost employers about $500 – $2,000 per employee per year.

The reason that there is a need to be able to provide this as a government benefit instead of relying on the private sector is that corporations are not reacting quick enough and those that would benefit the most from these policies are not offered.  As we see with the statistics from the Department of Labor, overwhelmingly, the poorest do not have access to paid family leave:

Characteristics Family leave  
  Paid Unpaid
Worker characteristics    
Management, professional, and related 20 92
    Management, business, and financial 25 92
    Professional and related 17 92
Service 7 80
    Protective service 14 90
Natural resources, construction, and maintenance 8 81
    Construction, extraction, farming, fishing, and 7 80
    Installation, maintenance, and repair 9 83
Production, transportation, and material moving 7 86
    Production 8 88
    Transportation and material moving 6 84
Full time 15 90
Part time 5 77
Average wage within the following categories3:    
    Lowest 25 percent 5 78
        Lowest 10 percent 4 75
    Second 25 percent 11 87
    Third 25 percent 15 91
    Highest 25 percent 21 93
        Highest 10 percent 22 94

It makes financial sense for employees to support paid family leave. Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth writes that women lose an estimated $274,044 and men $233,716 in lifetime wages and social security benefits when they have to leave the labor force early due to care giving responsibilities. Women in the workforce have not changed in a significant manner since the mid 1990s.  In their paper Female Labor Supply: Why is the US Falling Behind, Francine D. Blau and Lawrence M. Kahn write “by giving workers the right to thei job back after taking the leave, [paid leave] raises the job prospects of those who have left the labor force after the birth of a child.”  Houser and Vartanian found in their paper that women who report leaves of 30 or more days are 54% more likely to report wage increases in the year following the child’s birth than are women who take no leave at all.  Perhaps the idea that those returning from leave have a labor force attachment have some merit.  By shifting the burden to provide this leave away from businesses and place it squarely with the government, there will be new opportunities for small businesses who cannot afford to currently provide paid family leave.  Smaller businesses would not have to compete with larger firms for the same talent pool and be able to offer more competitive offers.  As we have seen, human resource managers believe that family supportive policies are what can attract and retain employees.

Finally, it makes sense for the government to encourage it.  While there will be a small uptick in government spending in “entitlement” spending due to how the Paid Leave Insurance would be distributed, there would likely be a cost savings as those who take leaves will likely see a decrease in other government spending.  Houser and Vartanian found that those who received paid family leave were much less likely to have to rely on public assistance.   Specifically they found

Women who return to work after a paid leave have a 39% lower likelihood of receiving public assistance and a 40% lower likelihood of food stamp receipt in the year following the child’s birth, when compared to those who return to work and take no leave at all.  Men who return to work after a paid family leave have a significantly lower likelihood of receiving public assistance and food stamps in the year following the child’s birth, when compared to those who return to work and take no family leave at all.

This should be self-evident by relying on the paid family leave, they were able to stay afloat without having to deal with additional public assistance.

Where it stands now

Hillary Clinton, Bernie Sanders, and Martin O’Malley all announced their support for paid family leave laws.  Clinton previously supported a similar law in her 2008 run for the Democratic nomination.  Cohn believes that Clinton would support such a law if she became president and would lay it out as a central tenant in her governing agenda.  The most ambitious form of paid leave among federal legislators is The Family and Medical Insurance Leave Act (The FAMILY Act) which has been introduced by Kirsten Gillibrand and Rosa DeLauro.  Their law would allow workers up to 12 weeks of up to 66%  of their monthly wages up to a capped amount for a serious health condition; the serious health condition of their child, parent, spouse or domestic partner; and the birth or adoption of a child.  It would cover all workers in all companies and would be funded by payroll contributions which they described as two-tenths of one percent by each the employer and employee.  It would also create a new Office of Paid Family and Medical Leave within the Social Security Administration.  Clinton’s plan would cost about $1 billion in annual spending.  This bill would cost more.  While she hasn’t endorsed this plan, she has said she supports the principle.

Marco Rubio in his failed bid to win the Republican presidential nomination offered a plan to pay for family leave which was based on a tax credit.  Rubio argued against a federal mandate comparing the paid family and medical leave to Obamacare.  Rubio argued for a tax credit to help pay for it.  The tax credit would be a “25% non-refundable tax credit for businesses that voluntarily offer at least four weeks of paid family leave, limited  to twelve weeks of leave and $4,000 per employee each year.”  In other words, as Jonathan Cohn writes, “for every four dollars in wages that companies paid out to employees on leave, they would get just one dollar back from the government.”    Since the $4,000 is the maximum tax credit, a company would need to pay $16,000 to get the maximum credit.  As Cohn reports other policy analysts as saying that the tax credit is just too small for companies to take advantage of the policies.  The Tax Policy Center issued a report on tax breaks similar to this such as hiring people on welfare and people with disabilities, and found that   While I should refrain from commenting on someone’s failures when they were trying to run for President, Rubio’s plan was modeled after the Republican plan put forth by Deb Fischer and Angus King. It is surprising that Rubio even mentioned this type of plan while other more conventional candidates running for President such as Jeb Bush argued against paid family leave.

I think it’s more likely that Gillibrand’s plan with the FAMILY Act is the better plan; I think that Rubio’s plan is more likely to pass.  My assumption is that there will be a compromise to increase the tax credit for employers to be able to take advantage of offering such a package.  While I do believe that paid family leave would be difficult to be able to pass through an increasingly hyperpartisan Congress, I think that it’s worth seeing where everyone’s support lies.  My support lies with Gillibrand and her plan.  I think it’s a better plan because I believe that it covers more workers and is more likely to be followed through with.  Rubio’s plan, I believe, will be hailed as a plan that will solve the issue while doing nothing.  Nevertheless, paid family leave is an important idea and one that deserves our support.   I believe that I have laid out the arguments in favor of such a plan.