Prospects for Paid Family Leave

Competition or Coercion

Thanks to new bipartisan efforts, paid family leave is back in the limelight on Capitol Hill and in state capitals around the country. Typically championed by progressives and Democrats, paid family leave is increasingly enjoying encouragement from Republicans, such as Senators Marco Rubio, Bill Cassidy, Joni Ernst, and Mike Lee. Even President Donald Trump gave an endorsement of the idea in his second State of the Union address in February.

Despite widespread support for the general idea, the seemingly endless variety of proposals indicate that few agree on what benefits should be included in paid family leave proposals, who should get it, and of course, how it should be funded. That is always the sticking point – isn’t it – who should pick up the tab?

Democrat Sen. Kirsten Gillibrand, recently re-introduced the FAMILY Act, and channeling class-warfare rhetoric, argued “If the C-suite gets paid leave, then the factory floor worker should also get paid leave.” Her plan would mandate employers provide 12 weeks of family leave to employees when they take time for any serious health condition, including pregnancy or adoption, the illness of a child or domestic partner, or for military purposes. Workers would receive 66 percent of their normal wages, up to a capped amount (which would sway benefits in favor of lower-wage workers). As for funding, she would hike payroll taxes across the board.

Payroll tax increases are a tempting source of stable funding, due to their very broad base and the relatively lower deadweight loss associated with them, but their impact on wages and social mobility are concerning. New economic analysis of employment data from Canada found that the increased costs associated with a payroll tax hike are, all else held constant, passed on to workers in the form of lower wages and depressed wage growth.

Another popular proposal is using Social Security to pay for a family leave program, whereby new parents could collect early Social Security for some number of weeks and agree to delay collecting Social Security retirement benefits by some (usually lower) number of weeks. Republican Sen. Marco Rubio built on this idea in his Economic Security for New Parents Act, which would allow parents to pull forward a portion of their Social Security benefits to use for at least 2 months of leave across their household.

But funding federal paid family leave with Social Security is really just rearranging the deck chairs on the Titanic. It would add to the program’s short-term deficits by expanding benefits without supplementing funding in any way. Scheduled to add some $1.5 trillion to the national debt over the next decade just to keep its benefits flowing, and set to run out of money in 2034, Social Security is fundamentally broken – and now seems like a most inopportune time to pile on.

The economically damaging effects of a payroll tax increase or the untenable expansion of a broken government retirement system notwithstanding, public agreement is also a major concern. A recent poll found that while 74 percent of Americans support a federal paid family leave policy, support drops precipitously when you mention the costs. Even for a plan that would only increase taxes by $450 annually, support drops to 48 percent. Should the plan cost $1200 annually, cause smaller pay raises, or mean fewer benefits would be offered, only 43, 38 and 29 percent would support it, respectively. Only 21 percent would support a plan that meant less spending on education, Social Security, or Medicare. It’s almost as if the quantity demanded of something falls as the price of it rises!

These poll numbers are especially relevant when estimates put the annual cost of 12 weeks of paid family leave, offering only 45% of typical wages, at $569 per taxpayer. The cost balloons to $1286 annually per taxpayer for a program offering 100% coverage of wages for 12 weeks. A program offering “up to 12 weeks of benefits, equal to about 50 percent to 60 percent of regular pay (based on the Social Security benefit formula), would cost $114 billion over 10 years.”

Other proposals involve a mandate that employers provide and fully fund paid family leave. No matter how you slice the cake, the ingredients are the same–or put another way–there is no such thing as a free lunch. It really shouldn’t be a surprise these new benefits have a cost somewhere.

When you take time off work, unless they want to risk loss of business, your employer has to either hire someone else temporarily, usually at higher expense, to assume your workload, or pay an existing employee to take on more, or some combination of the two. One could argue employers might find ways to shift your work to existing employees without paying them more.  However, doing so has its own costs, as that is likely to damage employee satisfaction and the company culture, increasing the risk of attrition and the costs associated with it.

Furthermore, a large part of the family leave debate is based on a lack of understanding on the true extent of paid family leave benefits already offered in the private sector. Research from the American Action Forum found that “66.2 percent of workers who took family and medical leave were paid by their employers, and men and women received paid leave for family and medical reasons at similar rates.” With the unemployment rate at near all-time lows, good benefits packages are a major factor in employee recruiting and retention. A 2018 LinkedIn survey of both job-seekers and existing employees found that paid family leave, paid time off, and health insurance coverage were more important than perks like recreational spaces, free food, or gyms.

Employers are already jumping full swing onto flexible scheduling arrangements, remote work, and better benefits packages. Another survey found some 40 percent of employers already offer paid parental leave for birth and non-birth parents – this was compared to just 25 percent 4 years ago. This shift in benefits in such a short time frame makes it clear another way isn’t just possible–it’s happening right now! Instead of coercion, either through increased taxes or mandates that employers provide certain compensation packages, let employers battle it out! When we let competition happen, you get better benefits and your employer retains the best talent!

Elliot Young is a Catalyst Policy Fellow and currently serves as a Project Analyst of Global Supply Chain at Smith and Nephew Inc, where he specializes in large dataset analytics, portfolio optimization, and project streamlining. Prior to joining Smith & Nephew, Elliot has held numerous roles in economic policy analysis, including as Research Analyst for the ALEC Center for State Fiscal Reform, and Research Manager at the Institute to Reduce Spending. Elliot earned his Bachelor’s in Economics from Rhodes College in Memphis, Tennessee. Elliot is a collector of vintage watches, and enjoys tinkering with them in his spare time. He also plays the piano, cellars craft beer, and cooks fancy meals for himself, his wife Jocelyn, and their fur-child, Nugget. He is always in search of a better cup of coffee or new favorite craft beer.
Catalyst articles by Elliot Young