October 3 2013

Family Leave: Longer Isn’t Necessarily Better

Vicki E. Alger

Policies that support families are good for employees, businesses, and the economy. California became the first state to provide virtually all employees paid family leave a decade ago. But evidence suggests that the low-wage workers it was supposed to help are not taking advantage of it. Worse, they’re subsidizing the high-wage workers who do.

Kay Hymowitz, IWF’s featured modern feminist, notes that the benefits of feminism enjoyed by American women occupying the top economic rungs have not trickled down to women on the lower rungs. This dichotomy bears out in a powerful way with regard to paid family leave in the Golden State.

The dirty little secret about California’s PFL is that it operates as a Robin Hood in reverse scheme.

That’s because low-wage workers, those earning less than $20 an hour, are paying into a program overwhelmingly used by high-wage earners who work for large employers (those with 1,000 or more employees). Those employers are far more likely to provide benefits already, including health insurance, paid vacation, and paid sick leave.

Research shows half of all California PFL claims come from individuals working for large employers. Yet those employees represent just 14 percent of California’s workforce (p. 9). Meanwhile, low-wage workers whose jobs typically don’t offer paid sick days or vacation, are paying into—but not using—PFL.

One reason is they simply can’t afford it because the wage replacement levels are too low (see here and here, p. 4). Another reason is that PFL lacks job security protections. Only businesses with more than 50 employees are subject to federal Family and Medical Leave Act (FMLA) and California Family Rights Act (CFRA) reinstatement requirements. But since 96 percent of California businesses employ less than 50 people, those employees have no right of return (p. 585).

So structured, for every one worker who uses PFL, California needs 70 other workers to pay for it but not use it. Consequently, low-wage employees are no better off with California’s PFL than they were without it. This reality subverts the leading rationale for implementing it in the first place, namely, making sure no one has to choose between earning a paycheck and caring for a family member in need.

But there are certain career and economic realities for women of all income levels notes Hymowitz—even in countries often hailed as PFL or maternity leave leaders, such as Norway, Finland, Sweden, and Denmark, which offer close to a year or more off and up to 100 percent pay.

But it turns out that extended maternity leave in European countries leads to other problems. Women who take a year off from work with a new baby — not to mention mothers of a second child who take a total of two years — experience what economists call human-capital depreciation, meaning their skills get rusty. Their work-social networks also fray. Unsurprisingly, their income and careers take a hit. “Women who make full use of their maternity or parental leave entitlements receive, on average, lower wages in the years following their resumption of work than those who return before leave expires,” the Organisation for Economic Co-operation and Development concludes in a review of studies on the subject. The effect can continue for years after leave takers return to their jobs and “can permanently damage [mothers’] ability to achieve their labor market potential.”

In fact, generous maternity-leave policies have a tendency to harden a country’s glass ceiling, and women in the Nordic countries are actually less likely to reach career heights than women in the U.S. (The one exception is in the political realm, where quotas have filled Nordic legislatures and ministries with close to equal numbers of women as men.)

The work/life balance that meets one family’s needs won’t meet those of other families. That’s why no single government program—no matter how generous—will succeed in all cases. More often than not, well meaning government programs often have negative unintended consequences.

Any paid maternity or family leave policy should offer maximum flexibility for employees who want it without forcing those who don’t to pay for it. Importantly, no one should be forced to pay into a system yet be unable to afford accessing it.

A better approach would be to allow employees of all wage levels to open family leave savings accounts, FLSAs. Funds would not be taxed, and employers would be allowed to make tax-free contributions to employees’ FLSAs. This way, employees can set aside the amounts they think they’ll need based on their unique circumstances.

At the same time, businesses need to move into the 21st century by offering more flexible scheduling and greater telecommuting opportunities. Currently, the federal Family and Medical Leave Act is silent on these issues. Yet research shows that businesses offering greater flexibility have higher productivity, greater employee satisfaction, and far less absenteeism.

Working together, employers and employees can devise the strategies that work best for them and their families, which helps avoid the costly extended absences from work that adversely affect employees’ careers and businesses’ bottom lines.

 

 

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