Discussion: (0 comments)
There are no comments available.
A public policy blog from AEI
More options: Share,
View related content: Economics
Will asks important questions in his column: Why can’t families pay for it themselves? How will businesses recover the costs? Will employees be worse off as a result of mandated paid leave policies? What will be the impact on small businesses? And most importantly, in an era of ballooning government deficits, won’t a new spending program make everything just that much worse off?
Fortunately, much hard work and research has gone into answering these questions over the years. Most recently, a joint collaboration between serious and respected scholars under the umbrella of the AEI-Brookings Paid Family Leave Working Group examined the empirical evidence on paid leave. A link to the report is here, and we discuss the main recommendations below.
But what was striking to us about the column in the Washington Post was how light it was on the benefits of paid leave policies, the details of paid leave access, and the benefits that such access can provide to American families. A fair reading of the data requires presenting not just the “cons” of the policy but the “pros” as well. This is true not just for paid leave, but also for other policies. Below is what we know about the costs and benefits of paid leave.
Who will benefit most from paid leave access?
Mainly low-wage workers. The problem with paid leave programs across the US today is that the most vulnerable workers are left out of them. Low-wage workers have the least access to benefits from their employers and often don’t participate in state paid leave programs for lack of job protection or a low wage replacement rate. These are the workers for whom having a baby represents perhaps the greatest financial strain and arguably would benefit from paid leave the most. If we continue with the status quo, these are the workers who will be the most hurt. In our report, we propose a 70% wage reimbursement rate that is capped at $600, making it more generous for the lowest-wage workers. We also think that job protection could help workers comfortable with taking time off. Job protected leave could be a burden for employers if it is for a long duration, but there is little empirical evidence that a short policy negatively impacts employers.
Why can’t families pay for it themselves?
Half of Americans do not have $400 they could spend in an emergency, according to the Federal Reserve, let alone go weeks without a paycheck. And it’s not just about the costs of having the baby. It is about the ability to take that time off to have a baby, to recuperate and to look after the needs of the child, and to have a job when they would like to go back to work. While that is obviously common sense, it is also obviously much harder for a poor family to save up enough resources for such occasions. A social insurance approach — such as that we recommended in our report — that allows such costs to be shared across families may be more sensible in this regard.
How will businesses recover the costs, and will they pass them on to employees?
Paid leave policies can be costly for businesses if they are mandated. For instance, if the federal government tells businesses that 12 weeks of leave has to be provided and the business has to pay for it, these are obviously costly for the business. And economics would suggest that employers would pass on this cost to employees in the form of lower wages or discriminate against employees who are more likely to use paid leave. This is precisely why, in our working group, we gave a lot of thought to the design of this policy.
One solution is to make employees pay for the benefit themselves rather than impose it as a new cost on businesses. While businesses would still have to face the cost of making up the work that the absent employee would be responsible for, they would be absolved of the cost of actually paying the employee who is on leave. Empirical evidence from businesses in California and other states suggests that businesses are not burdened by the introduction of paid leave policies and have little difficulty adjusting to such policies. Many employers, on their own, offer accommodations for such needs.
What about the deficit? And impact on spending?
Addressing the cost of paid leave policies is important. How do we recover the cost? How much does it add to the deficit? These are important questions and ones that we are attempting to answer through actual modeling in the second phase of the AEI-Brookings Paid Leave Working Group. It is correct that spending will go up as a result of this policy and we need spending offsets not targeted at lower income households, as discussed in our previous report.
However, it is also worth pointing out that the biggest drivers of spending are entitlement programs, and whether we add a new parental leave policy onto Social Security or elsewhere, the addition to costs is likely to be trivial. Costs will be higher if we include not just parental leave but also leave for own medical and family caregiving needs. But if all we are talking about is parental leave, this will hardly make a dent in the trajectory of government spending.
Like any new policy, paid family and medical leave has its advocates and its opponents. It also has costs and benefits. The only way to meaningfully advance the conversation is to recognize and give due consideration to both aspects.
Aparna Mathur is a resident scholar in economic policy studies at the American Enterprise Institute. Abby M. McCloskey, founder of McCloskey Policy LLC, is an economist and political commentator.
There are no comments available.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2019 American Enterprise Institute