Vermont’s House of Representatives recently passed H.107, a bill to create a statewide paid family and medical leave program. It’s now being considered by the Senate. That may sound like great news for working women and families struggling to get by, but these are the workers who are most likely to be hurt most by the program’s unintended consequences.
The plan passed by Vermont’s House of Representatives would offer workers welcoming a new child, caring for a sick family member, or facing their own serious illness, benefits up to 12 weeks each year. That’s a really generous leave package. But how will employers react to this new regime and the expectation much of their workforce might disappear for one quarter of the year?
Workers should be warned many businesses will start looking to consolidate employment — particularly for workers with fewer skills. Employers will want to decrease the risk associated with having employees who take lengthy leave time, so will find ways to rely on fewer workers (such as by increasing automation, outsourcing non-essential functions and hiring fewer, more productive workers).
The payroll taxes imposed to fund these new benefits will also fall heaviest on those with lower incomes. Workers will lose a little less than 1% (0.93%) of their compensation to a new payroll tax, which will be imposed on their first $150,000 of earnings. But those with modest incomes will feel the loss the most. People will have no choice but to start paying this new tax and participating in this new program, regardless of whether they want, need, or use these new paid leave benefits. That reduction in income will make it harder, particularly for low-income workers, to make ends meet and put money away for a rainy day on their own.
Most businesses already offer their employees some form [of] paid leave. Expect those existing leave benefits to disappear as employers will have an incentive for everyone to make use of this new government program, which they have to pay for. Workers who had less family leave time, but at full pay, may find they like the new benefit regime less. The new government program will also likely mean more paperwork and much less flexibility in how benefits are taken.
Undoubtedly, supporters of this proposal have the best intention, but they ought to consider who benefits — and who loses out — from other government-run paid leave programs. They might take note that in California, the median income of mothers who took paid leave following the birth of a child was about $10,000 higher than the median income of the general population. More than 20% of beneficiaries in the California program had incomes in the highest income brackets, while less than 4% had incomes in the lowest income brackets.
The same is true with European family leave programs. Economists at the University of California concluded Norway’s paid leave program led to a “pure leisure transfer to middle and upper income families … at the expense of some of the least well off in society.” Studies show similar results in the United Kingdom, Sweden, Iceland and Belgium.
There are better ways to help Vermont residents who lack paid leave benefits. First, the good news is employers are increasingly offering employees paid leave benefits, including for lower-income and hourly workers. Lawmakers should recognize a good economy and better business climate creates jobs, higher wages and better benefits for workers, so that should be priority number one.
New Hampshire and Vermont have also put together a proposal for a two-state paid leave system, which would give workers the ability to opt-in to coverage. This program would be voluntary: Rather than requiring all workers to pay the new taxes and switch over to the government-benefit system — even if they are perfectly happy with their current paid leave plan — employees could decide for themselves if they want this coverage.
A poll conducted by Heart and Mind Strategies for Independent Women’s Forum found broad, bipartisan desire for federal action (73%) with a majority saying a plan should provide workers control and flexibility over the benefits (78%) and should be fair and not financially burden workers who do not use the benefit (67%). The voluntary, two-state plan would do just that. Government paid leave benefits sound compassionate, but they aren’t in practice. They mean less income, freedom, flexibility and fewer job opportunities, particularly for lower-income workers. Vermont should reject this approach.