Two Truths And A Lie: Avoiding Paid Leave Pitfalls

Everyone loves the party game/icebreaker “two truths and a lie.”

As this coronavirus pandemic has continued to drag on, many different paid leave plans have been proposed, including federal paid leave. Can you identify which of the following is NOT true about paid leave?

A. A majority of workers already have paid leave benefits.
B. A federal program would raise taxes and reduce wages for poorer workers.
C. Women would be particularly helped by a federal program. 

Let’s take these statements one at a time: 

A. TRUE. A majority of workers already have paid leave benefits thanks to employer-provided programs, state and city-based programs, and private disability insurance. In fact, businesses are increasingly providing workers with new benefits. According to the Society of Human Research Management, more than 90 percent of employers offer paid leave of some kind. As of 2019, 76 percent of all civilian workers (and 86 percent of all full-time workers) had access to paid sick leave benefits. And the share of employers offering and expanding paid leave benefits is increasing: the share of part-time workers with access to paid sick leave benefits rose from 28 percent in 2009 to 43 percent in 2019. A federal program could get in the way of these trends and disrupt existing options. 

B. TRUE. Despite good intentions by lawmakers, low-income workers are hurt most by payroll taxes taken from earnings to fund paid leave entitlements and are less likely to take benefits. Low-income workers are disproportionately affected by government approaches to paid leave programs because these programs tend to replace only a share of people’s wages. For example, Rhode Island’s state paid leave program replaces only about 60 percent of an individual’s wages. In 2017, 42 percent of the workers paying into Rhode Island’s program made less than $20,000, but only 19 percent of beneficiaries were from this income group. Low-income workers are also more likely to lose job opportunities. As employment costs go up, employers will seek to minimize their costs and exposure by reducing staff.

C. FALSE. Women have been particularly hard-hit by the lockdowns associated with the pandemic. One-size-fits-all government programs will discourage the creation of flexible options, such as telecommuting, job sharing, and part-time arrangements. Employers may also see women, who are statistically more likely to use paid leave benefits, as less attractive hires, especially for management positions. This appears to be the case in Europe, where there are generous paid leave benefits and women are less likely than American women to be managers. Furthermore, more generous government paid leave requirements correlate with bigger gender wage gaps. 

A better approach: Instead of these paid leave policies that hurt the individuals they’re supposed to help, federal paid leave efforts should target support to workers who need help, without disrupting the employment contract of every working American. Some options include allowing workers to put pre-tax earnings, up to a maximum, into Universal Leave Accounts and then those funds could be used to “pay” for their leave time when it’s needed. Employers, charities, and even the government could also contribute to these accounts. Existing programs, such as Social Security or Child Tax Credits, could be reformed to offer workers the choice of drawing upon those benefits early to provide paid leave. At a minimum, any new federal paid leave entitlement program should be voluntary. Workers shouldn’t be forced to pay into a system if they think it is a poor value.