January 2 2014

Another Costly Federal Entitlement

Carrie L. Lukas

A silver lining of the ObamaCare rollout disaster should be that the public will be a little more skeptical of the cost-free promises made by politicians from now on.

Remember how ObamaCare was supposed to increase insurance coverage and lower premiums, without impacting existing coverage or increasing the debt by a penny? We’ve seen how they has turned out, as millions of Americans have lost their health insurance and are finding out they’ll have to pay more often for less access to trusted doctors.

Let’s hope Americans keep that in mind as the hear Congress is considering new legislation to create another federal entitlement—this one for paid family leave.

A bill proposed by Rep. Rosa DeLauro, D-Conn., and Sen. Kirsten Gillibrand, D-N.Y would give qualified workers two-thirds of their pay for up to 12 weeks while they are on leave. To pay for the new entitlement, the federal government would impose a new tax on wages of .04 percent. Supporters of the proposal explain that’s only a couple bucks a week for an average earner in new taxes, so it’s a small price to pay for giving new moms paid time off to care for their newborns.

If that were really the only costs of the proposal, then it might make sense to offer this protection for workers, but as is so often the case, a big part of the story is missing. Those direct taxes aren't the only costs of this proposal; in fact, this entitlement would have important impacts on the labor market more broadly and how employers consider employees and the compensation packages they offer workers, particularly women.

First, this federal one-size-fits-all solution will mean that employers and employees will be less likely to negotiate personalized arrangement when facing a leave of absence. For example, after having a baby, some women prefer to come back part-time, or full-time while working from home, after fewer than 12 weeks of time off. But now, there is less of an incentive for both parties to consider such arrangements.

Employers who had offered fully paid leave will now have little incentive to continue that policy, since they can now outsource their costs to the federal government. Employers will also now expect that all women having babies will disappear entirely for 12 weeks. While the taxpayers may pick up the direct costs for their wages during that leave time, this still means employers will be losing a valued employee for several months—something that will be hard, particularly on small businesses.

As a result, businesses will have an incentive not to consider a woman of child-bearing age for leadership positions that would be tough to fill during extended absences. That may sound harsh, but it’s reality, particularly in an economy like this when in which so many businesses are struggling to stay afloat.

I've been on both sides of this equation: I've needed time off after having a baby and also been an employer involved in negotiating leave arrangements with women about to go on maternity leave. Honest conversations and consideration on both sides of the equation have made these arrangements work out. Having the federal government get in the middle of such discussions, and effectively render many options obsolete, wouldn't have helped in either position.

Undoubtedly, bringing up the unintended consequences of a paid leave proposal will earn one the label of being a party to the “war on women.” But it’s the truth, even if politicians would like to pretend otherwise.

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