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Economic Benefits of Paid Sick and Family Leave

August 17, 2017
As the United States continues to play its role as a leader of the global community, there is one area in which the nation falls far behind its progressive counterparts: paid sick and family leave. Paid sick and family leave is the idea that working men and women should have the ability to earn paid time away from work to care for a new child, ill family member, or themselves, while protecting against discrimination or retaliation for needing or taking leave.

According to the CATO Institution, only 12% of workers in the U.S. have access to paid family leave. [1] According to Pew Research, among 41 progressive nations across the globe, the United States is the only that lacks a federally-mandated paid sick and family leave policy. [2] As a result, many states and companies have stepped up to provide their workers access to paid sick and family leave, and have noticed a number of benefits for businesses and local economies alike.

Many major tech companies, such as Amazon, Spotify, and Adobe have introduced paid family leave policies, while California, New Jersey and Rhode Island have state-mandated paid family leave plans that allow workers six weeks of time off with two-thirds or 55% pay of their total salary. [3] But what is the cost of offering paid benefits for leave? By looking into the ways in which this public policy has affected California’s businesses over the last decade, the economic impact of paid sick and family leave can be observed. According to the Center for Economic and Policy Research, about 90% of employers reported that California’s paid family leave policies had either a positive effect or no effect on productivity and profit. Around 96% agreed that it decreased employee turnover and about 99% believed that it boosted employee morale. [4] State-mandated paid leave was an extension of the temporary disability insurance program in California, and is thus supported by payroll deductions.[5] According to the California Employment Development Department, every employee pays around $30 a year for the paid leave fund, which is less than a dollar a week.[6]Many companies, such as Google, have also noticed that it is easier and more cost effective to hire a temp for the 12-18 weeks than to go through the entire recruiting, interviewing and hiring process of finding new talent to permanently replace the employee.[7] New mothers who take paid leave are more likely to stay in the workforce than those who do not, as Californians who took leave were 6% more likely to be working a year later.[8] In addition, these workers were also 54% more likely to report wage increases.[9] With less employee turnover, companies do not lose talent that is essential to the company’s success and function, thus contributing to the company’s overall stability. Google’s senior VP of people operations, Laszlo Bock, affirmed that the 12-18 weeks of paid leave also allows workers to slowly draw their attention back to work, and thus makes the transition to work easier, faster, and more efficient. [10] Boosting morale is another important aspect to improving a company’s success and stability, as happier employees lead to more motivation and efficiency in work. According to the president of Change.org, Jennifer Dulski, when staffers in management positions take paid leave, it gives other employees an opportunity to prove themselves at higher positions, allowing the company to promote talent from within and flourish. [11] 

So what is the cost of not providing federally-mandated paid sick and family leave? By looking at the Family and Medical Leave Act, the economic impact of not offering this paid benefit can be noted. The Family and Medical Leave ACT (FMLA) was signed into law by President Bill Clinton in 1993, and gave workers the right to 12 weeks of unpaid leave. [12] The FMLA was created with the assumption that most households have a breadwinner male figure and a female figure that could care for children or sick family members, therefore making paid leave unnecessary. However, family structure has changed drastically over the last two decades, and married households with a breadwinner father has decreased from 65% to 22% between 1960 and 2012. [13] There are many women in the workplace, and between 1967 and 2012, the percentage of mothers who are breadwinners or co-breadwinners, has increased from 27.5% to 63.3%. Without paid leave, women are discouraged from staying in the workforce after periods of caregiving, and can lose an estimated $274,044 in lifetime wages and Social Security benefits. According to the CATO Institute, although FMLA protected jobs during medical or family leave, around 46% of workers eligible under FMLA were unable to take advantage of the policy because they could not afford unpaid leave. Access to FMLA depends on the socioeconomic status of the worker, as workers in lower positions with lower salaries are less likely to use paid sick and family leave. This exclusive social insurance program only succeeds to exacerbate wealth disparity, further destabilizing the national economy. 

Image: Protest for paid family leave in the European Parliament.Source: Wiki CommonsImage: Protest for paid family leave in the European Parliament.
Source: Wiki Commons Credit: Wikicommons

In conclusion, establishing a federal-mandated paid sick and family leave policy would be beneficial for the American economy. A new bill, the FAMILY Act (S.337) has been introduced by Senator Gillibrand (D-NY) and has incorporated many of these benefits in order to promote paid sick and family leave for 12 weeks with 66% of monthly wages earned. [14] The policy would strengthen the labor force by decreasing worker turnover, and would allow companies to maintain stability and success. It would also encourage women to remain in the workforce, stabilize family incomes, and contribute to the economic growth and productivity of the middle class. Paid family leave would also help support workers who earn lower wages, as women in New Jersey who took paid leave were 40% less likely to receive public aid or food stamps than women who did not. [15] By slowly decreasing the wealth gap, paid sick and family leave can contribute to economic equality and stability. The need for this policy is therefore justified, and will not only have a beneficial economic impact, but will also allow the U.S. to join countless other progressive nations as a global leader for paid sick and family leave.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1] Boushey, Heather. “To Grow Our Economy, Start with Paid Leave.” Cato Institute. November 14, 2014. https://www.cato.org/publications/cato-online-forum/grow-our-economy-start-paid-leave.

  [2] Livingston, Gretchen. “Among 41 nations, U.S. is the outlier when it comes to paid parental leave.” Pew Research Center. September 26, 2016. http://www.pewresearch.org/fact-tank/2016/09/26/u-s-lacks-mandated-paid-parental-leave/.

  [3] Dishman, Lydia. “The Real Cost of Paid Parental Leave For Business.” Fast Company. January 28, 2016. https://www.fastcompany.com/3055977/the-real-cost-of-paid-parental-leave-for-business.

  [4] Miller, Claire Cain. “The Economic Benefits of Paid Parental Leave.” The New York Times. January 30, 2015. https://www.nytimes.com/2015/02/01/upshot/the-economic-benefits-of-paid-parental-leave.html.

  [5] Devlin, Dory. “What would it cost to have mandatory, paid parental leave?” Fortune. February 05, 2015. http://fortune.com/2015/02/05/paid-parental-leave-costs/.

  [6]Edd.ca.gov.Report. State of California Employment Development Department. July 1, 2014. http://www.edd.ca.gov/disability/pdf/Paid_Family_Leave_10_Year_Anniversary_Report.pdf.

  [7] Dishman. “The Real Cost of Paid Parental Leave.” 

  [8] Miller. “The Economic Benefits of Paid Parental Leave.” 

  [9] O’Leary, Ann. Mitukiewicz, Alexandra. and Boushey, Heather. “The Economic Benefits of Family and Medical Leave Insurance.” Center for American Progress. December 12, 2013. Leary, Ann.aid Parental Leave.” https://www.americanprogress.org/issues/economy/reports/2013/12/12/81036/the-economic-benefits-of-family-and-medical-leave-insurance/.

  [10] Dishman. “The Real Cost of Paid Parental Leave.”

  [11] Dishman. “The Real Cost of Paid Parental Leave.” 

  [12] Boushey. “To Grow Our Economy, Start with Paid Leave.” 

  [13] Boushey. “To Grow Our Economy, Start with Paid Leave.” 

  [14] O’Leary. Mitukiewicz. and Boushey. “The Economic Benefits of Family and Medical Leave Insurance.” 

  [15] “Rutgers Study Finds Paid Family Leave Leads to Positive Economic Outcomes.” Rutgers Today. January 19, 2012. http://news.rutgers.edu/news-releases/2012/01/rutgers-study-finds-20120118#.WXbYGNPyuRs.

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