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Economic Effects of The Family and Medical Leave Insurance Act

September 01, 2015
The United States, Suriname, and Papua New Guinea-while on the surface these three countries seem to have little in common, they share the distinction of being the only three countries in the world without any form of paid parental leave. While advocates have been fighting for paid leave, including family and medical leave, for decades, the issue has recently been gaining renewed attention.

By Elizabeth Wynkoop, MSW’15

Presidential hopeful Hillary Clinton has made securing paid leave part of her platform, and public support is growing: a recent poll found that 85% of people support nationwide paid sick leave and 80% are in support of paid family leave.

There are currently some provisions available to provide workers with family and medical leave. The 1993 Family and Medical Leave Act (FMLA) requires 12 weeks of unpaid leave for certain eligible employees for serious illness, care for a family member, or care for a newborn or adopted child. However, unpaid leave is inaccessible for many workers. Since the FMLA only applies to workers of firms with at least 50 employees, more than 4 out of 10 workers are ineligible for unpaid time off.  Even for those who are eligible, many cannot afford the expense of going an extended period without pay.  One study of people who opted not to take leave when they needed it found that nearly half attributed their decision to  financial hardship. Workers who did take leave found that two-thirds experienced financial struggles during this period, and almost half reported they would have taken more time off if more pay had been available. Private employers have not proven to be a reliable alternative for providing paid leave, since currently only 13% of employers offer paid family leave.

The Family and Medical Leave Insurance Act would greatly expand access to paid leave. The bill, sponsored by Senator Kristen Gillibrand (D-NY) and Representative Rosa De Lauro (D-Conn), would require 12 weeks of paid leave available for medical issues, pregnancy and recovery, or caretaking of a newborn, adopted child, or ill family member. Workers would be eligible to receive up to 66% of their normal salary, up to $1000 per week.  Unlike the original FMLA, this law would apply to all workers, regardless of the size of their workplace or their number of hours worked. The benefits would be funded through a payroll contribution of 2/10ths of one percent of wages earned, and distributed through a new Office of Paid Family and Medical Leave through the Social Security Administration.

Critics are concerned that this program would bring unnecessary regulations and would be excessively costly to employers. However, some economists suggest that these policies would in fact strengthen the workforce by giving flexibility to workers dealing with major life events such as childbirth, illness, or family care. Paid parental leave programs in Europe and North America are linked to higher employment rates, lower unemployment, and greater workforce participation for women.   New Jersey and California have longstanding paid leave policies, and their impact has been positive. A study of Californian paid leave found that 93% of employers reported that paid leave had either no effect or a positive effect on worker retention. This increased retention has been calculated to save the state $89 million per year in reduced turnover costs. Another study found that workplaces with paid leave policies had increased worker productivity, and, in turn, increased profitability. 

 These policies are critical for new parents, particularly for women.  Women are disproportionately likely to take responsibility for caring for a new child. Currently, census data shows that 40% of new mothers have to take unpaid leave, and one quarter quit or are let go from their jobs after giving birth. Those who take unpaid leave often experience economic difficulties, with around one third having to borrow money, draw from their savings, and leave bills unpaid, and 15% turn to public assistance.  These difficulties have long-term effects on their earning potential.  Women experience a penalty on income for each child they have, for an average yearly loss of $1,100 per child.  This gap plays a large part in perpetuating the gender income gap: a childless woman earns 94% of what a childless man earns, however, a mother earns only 60% of what a father earns.  

Paid leave offers a potential solution for lessening this income penalty for childbirth.  Mothers who take paid leave are more likely to return to the workforce and to report wage increases within a year after giving birth.  In New Jersey, one study found that in the year after giving birth, women who received paid leave were 40% less likely to receive public assistance, and in the second year, they worked 15-20% more hours and had a 5% higher hourly wage than women who did not receive paid leave. In California, women receiving paid maternity leave were also 6% more likely to return to work within a year. These policies also allow for more equal distribution of work and family care between men and women.  In California, the percentage of men taking paid family leave has doubled, and the length of their leaves has increased. Policies that make it easier for women to continue working after giving birth are critical, particularly since the U.S. ranks 17th in female workforce participation, and the percentage of women age 25-54 in the workforce has been decreasing since the 1990s. Some economists attribute this drop to the U.S.’s failure to provide sufficient paid parental leave.  

The research around paid leave shows multiple benefits not only for the individual worker, but for employers as well. The research is particularly positive surrounding paid parental leave and its potential to improve workforce participation, retention, and wages for women. The Family and Medical Leave Insurance Act is overdue in affording American workers the benefits that every other industrialized country already has, and deserves the opportunity to be put to a vote in front of Congress.

Works Cited

World Policy Forum (2015) Is paid leave available to mothers and fathers of infants?  Retrieved from http://worldpolicyforum.org/policies/is-paid-leave-available-to-mothers-and-fathers-of-infants

Bologna, C. (2015). Hillary Clinton Calls For Paid Family Leave In Mother’s Day Campaign Video. Huffington Post. Retrieved from http://www.huffingtonpost.com/2015/05/11/hillary-clinton-paid-family-leave-mothers-day_n_7257370.html

Americans’ Views on Income Inequality and Workers’ Rights. (2015, June 3). The New York Times. Retrieved from http://www.nytimes.com/interactive/2015/06/03/business/income-inequality-workers-rights-international-trade-poll.html?_r=0

United States Office of Labor, Wage and Hour Division. (n.d.). Family and medical leave act. Retrieved from website: http://www.dol.gov/whd/fmla/

United States Office of Labor, Wage and Hour Division. (n.d.). FMLA Surveys. Retrieved from website: http://www.dol.gov/whd/fmla/survey/

Klerman, J. A., Daley, K., & Pozniak, A. (2012). Family and medical leave in 2012: Technical report. Cambridge, MA: Abt Associates Inc. Retrieved from http://www.dol.gov/asp/evaluation/fmla/FMLA-2012-Technical-Report.pdf

United States Department of Labor. (2014). National Compensation Survey: Employee Benefits in the United States, March 2014. Bulletin2779. Retreived from. http://www.bls.gov/ncs/ebs/benefits/2014/ebbl0055.pdf

The Family and Medical Leave Insurance Act, S.786, 114th Cong. (2015). Retreived from https://www.congress.gov/bill/114th-congress/senate-bill/786

Ruhm, C. J., & Teague, J. L. (1995). Parental leave policies in Europe and North America (No. w5065). National Bureau of Economic Research. Retrieved from http://www.nber.org/papers/w5065

Appelbaum, E., & Milkman, R. (2015). Leaves that pay: Employer and worker experiences with paid family leave in California. EPRN. Retrieved from https://scholar.google.com/scholar?q=leaves+that+pay&btnG=&hl=en&as_sdt=0%2C39

Dube, A., & Kaplan, E. (2002). Paid family leave in California: An analysis of costs and benefits. Unpublished manuscript. Retrieved from http://paidfamilyleave.org/pdf/dube.pdf

Meyer, C. S., Mukerjee, S., & Sestero, A. (2001). Work-family benefits: which ones maximize profits?. Journal of managerial Issues, 28-44. Retrieved from http://www.freepatentsonline.com/article/Journal-Managerial-Issues/74942451.html

Laughlin, L. L. (2011). Maternity leave and employment patterns of first-time mothers: 1961-2008. US Department of Commerce, Economics and Statistics Administration, US Census Bureau. Retrieved from http://www.census.gov/prod/2011pubs/p70-128.pdf

Budig, M. Parenthood Exacerbates the Gender Pay Gap. The Hill’s Congress Blog (Sept. 30, 2010), http://thehill.com/blogs/congress-blog/economy-a-budget/121869-parenthood-exacerbates-the-gender-pay-gap

New Evidence on the Gender Pay Gap for Women and Mothers in Management: Hearings before the U.S. Congressional Joint Economic Committee Hearing, (2010) (Testimony of Michelle J. Budig) Retrieved from http://www.jec.senate.gov/public/_cache/files/3d4b47cf-4afb-4e53-a550-164b4b593266/budig-testimony.pdf

Houser, L., & Vartanian, T. (2012). Pay Matters: The Positive Economic Impacts of Paid Family Leave for Families, Businesses and the Public. New Brunswick, NJ: Rutgers Center for Women and Work, January. Retrieved from http://news.rutgers.edu/news-releases/2012/01/rutgers-study-finds-20120118#.VZrLpflVikp

Rossin‐Slater, M., Ruhm, C. J., & Waldfogel, J. (2013). The Effects of California’s Paid Family Leave Program on Mothers’ Leave‐Taking and Subsequent Labor Market Outcomes. Journal of Policy Analysis and Management32(2), 224-245. Retrieved from : http://www.nber.org/papers/w17715

Reese, P. (2014, July 17). California paid family leave program growing – thanks to men. The Sacramento Bee. Retrieved from http://www.sacbee.com/news/local/article2603053.html

Blau, F. D., & Kahn, L. M. (2013). Female labor supply: Why is the US falling behind? (No. w18702). National Bureau of Economic Research. http://www.nber.org/papers/w18702

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