28 Apr Paid Family Leave: What’s the Right Model?
A quarter century after the US Family and Medical Leave Act (FMLA) passed, paying employees for the leave that the FMLA grants them, finally appears to be rising in our country’s social and political consciousness.
The next question, which is certain to be hotly debated, is what is the right model for us? When I managed a large global organization, with employees from Europe and Canada, to the Middle East and much of the US, I learned one key lesson. If you truly care about the right balance between societal and industrial benefits of any plan, you must design it “inclusively.”
I realize designing the paid leave plan “inclusively” may seem on one hand obvious, and on the other hand, will certainly be easier said than done. But please consider the huge costs and potential adverse effects of a poorly thought-out plan. For example, a plan proposed by a sitting Senator last year would have new parents drawing down on their Social Security benefits earlier in life, and force them to work longer years or face reduced retirement benefits later. This plan basically amounts to discriminating against parents versus those with no children. We must also avoid “one size fits all” mentality. As a small company CEO, I can attest to the difficulty that an organization of our size deals with on a regular basis to comply with regulations that are typically written with much larger companies in mind.
So how to go about designing the paid leave plan “inclusively” for both societal and industrial benefit? How about we start by asking a diverse task force to study few plans around the world that seem to work? Have them put together a menu of top options for discussion with a group of leaders from diverse industries and sizes. Although this may seem like a long-drawn process if led effectively by a non-partisan and informed group, it can be done in less than a year, which is much shorter than the political discourse will probably go on around this topic.
I have been fortunate enough to take part in amazing projects that delivered unprecedented results in record time. So I know this can be done. The only required ingredients for finding an “inclusive” and effective solution to the paid leave plan are data, team bi-partisanship, and leadership.
Source: Knowledge at Wharton, April 22, 2019
When the Family and Medical Leave Act went into effect in 1993, advocates cheered. But they also lamented the fact that although eligible workers were now guaranteed leave from a job for having a child or other family events, that time would come without a paycheck.
Now, more than a quarter of a century later, the idea of paid parental or family leave in the U.S. appears to be gaining momentum. Both major political parties are stumping for proposals that would provide paid leave — though how the benefit would get paid for differs substantially—and several states and municipalities have already passed laws mandating it.
Paid leave benefits for new parents and other caregivers have also ticked up among the largest 20 U.S. companies in recent years, though benefits vary widely—granted sometimes just to birth mothers. Still, paid family leave of all types increased significantly between 2016 and 2018, according to a Society for Human Resource Management survey of 3,500 HR professionals.
That the U.S. would be last among developed countries to enshrine in law paid parental leave, and that it would happen now under a presidential administration seen by many as unfriendly to workers, strikes many as unlikely.
But several political, societal and business factors now coming together explain the new energy.
“I think what’s in the air is a larger conversation about gender inequality,” says Wharton management professor Stephanie Creary. “People are starting to see the issue of parental leave and gender bias as one and the same.”
In the last five years or so, the conversation about gender bias in the tech sector has ramped up, she notes, and in order to get more buy-in many companies have linked it to a conversation about parents. “That parent also is someone who is male,” Creary says. “It’s something that resonates with many people. By making gender inequality also about parents, it has allowed more people, including men, to champion this issue. You are seeing more men talking about parental leave, and that’s a new phenomenon.”
Three trends in particular are contributing to heightened attention around paid parental leave, says Wharton management professor Matthew Bidwell. “The first, of course, is that the nature of work has changed with the demise of the single-breadwinner model, and people are much more conscious of the disconnect between employment policies and the realities of daily life,” he says. “On top of that there has been this big shift toward parents spending more time with their children despite the fact that both parents are now more likely to be working.
“Also, there has been this enormous wave of anger around multiple aspects of the ways that women have been treated that is roiling the political system. Women currently bear the brunt of the tensions between bringing up a family and being at work,” says Bidwell. “So any politician who is paying attention is trying to figure out how to appeal to women voters. Parental leave is a really obvious issue.”
In the current crop of declared and near-declared candidates in the 2020 presidential race, “everybody has got to have an opinion about this,” says Stew Friedman, director of the Wharton Work/Life Integration Project and author of the book Total Leadership. Five years ago, paid parental leave was not a mainstream issue, and now it is, he says.
That the U.S. still does not have paid parental leave is a vestige of a former societal order, says Friedman. “We’re in transition as a society, and I think the traditional ideology remains. It’s weakening, but still too pervasive—this idea of the single-earner household where the primary income generator is the man who is always available for work and the woman is the caretaker of the home. We need more progressive social policy, favored by most Americans, that fits with the pressing realities of today’s working families and that truly invests in meeting their needs.”
Reaching Across the Aisle
It is perhaps adding momentum that one prominent figure advocating for federally mandated paid family leave is Ivanka Trump. “It’s encouraging to see members on both sides of the aisle putting forward paid family leave proposals,” said President Trump’s daughter in a statement provided to The Washington Post.
But the details on proposals from Democrats and Republicans differ greatly. Sen. Marco Rubio, R-Fla., announced a proposal in 2018 in which new parents could draw down on their Social Security benefits earlier in life, providing income for parental leave but forcing those workers to extend working years or face reduced retirement benefits later.
“It strikes me as a bad idea,” says Olivia S. Mitchell, Wharton professor of business economics and public policy and executive director of the Pension Research Council. For one thing, Social Security is already facing “enormous financial insolvency problems, and so anything that would stress the ability of the system to pay benefits troubles me a great deal.”
Current projections are that by 2034, in order to meet its obligations, Social Security will have to cut benefits by about 30% or raise taxes by 60%, she notes. “We need to face as a nation what Social Security needs in order to pay its benefits, but picking away at the edges by having it offer other benefits for other purposes doesn’t seem viable.”
The other math problem that would come with the proposal, she said, is that proponents of the idea assume that people will eventually pay more into the system by virtue of the fact that they will work longer to make up for the money they took out as young parents. “But it’s a very big assumption we’re making here,” Mitchell said.
“Why would you require people to hurt their long-term financial security to take care of their kids when there are other alternatives? And this would hurt people at the bottom end of the economy more than at the top end,” says Friedman. “A healthy society is one that cares for its young without forsaking the needs of elderly people, and this tradeoff that’s being imposed in the Rubio plan I think is misguided.”
Democrats are floating their own proposals. In February, presidential candidate Sen. Kirsten Gillibrand, D-N.Y., and Rep. Rosa DeLauro, D-Conn., reintroduced the Family Act, which would give eligible workers up to 12 weeks of pay at two-thirds of their monthly wages—for new parents as well as caregivers dealing with serious health issues of a parent, spouse or domestic partner or child. It would be funded jointly by employer and employee payroll deductions of two cents per $10 in wages.
In perhaps the most promising sign of progress, a bi-partisan proposal from the Senate is emerging. Republican Sen. Bill Cassidy (La.) and Democratic Sen. Kyrsten Sinema (Ariz.) are crafting a paid family leave proposal, though the details on how it would be funded and what it would provide are unclear. As discussed right now, its benefit term would be, in the eyes of many, inadequate. “Six to eight weeks is maybe not as long as some would like, but is something we could afford,” Cassidy recently told Bloomberg.
But what is clear is the disconnect between the 17% of American workers who get paid parental leave and the 84% who say they would like to see paid family leave for all workers, according to a 2018 survey published by the National Partnership for Women & Families.
It’s easy to see why the idea has become popular. The financial burdens created by taking unpaid leave are substantial, according to a Pew survey published in 2017. That snapshot found that 78% of respondents who received no pay or only part of their regular pay when they took leave from work had to cut back on spending to make up for the lost income. About half said they ate into savings, 40% said they cut their leave time, nearly 40% took out debt, a third said they delayed paying bills, about a quarter reported borrowing money from friends or family, and 17% went on public assistance.
The numbers cut even deeper for households making $30,000 or less, with half of those on family leave without full pay tapping public assistance.
Various Models for Benefits and Funding
Whatever federal proposal for paid family leave ends up prevailing, current programs at other levels of government and in other countries offer some guidance.
“I don’t think we have a good handle on the ‘optimal’ system yet, but there are some good arguments for expanding parental leave in the U.S., which is currently an outlier relative to other developed countries,” says Benjamin B. Lockwood, Wharton professor of business economics and public policy. “We already have many public policies devoted to investing in children and providing support for working parents—from the Earned Income Tax Credit to the Child Tax Credit to our public education system. Given that commitment, it makes sense to me that we would want to provide support during the crucial formative first months of a child’s life.”
The system in Iceland is worth considering, he says. “It has a relatively generous parental leave policy, but it is a bit distinctive in that it has substantial non-transferable (‘use it or lose it’) paid leave for fathers as well as mothers. That helps even out childcare roles between parents.” Moreover, one concern about generous leave policies is they could have the unintended consequence of employers passing over qualified female job applicants in favor of men who are less likely to take parental leave. “A policy like Iceland’s reduces the asymmetry between men and women in that respect, and so may create more equal hiring treatment,” Lockwood adds.
One concern is on the part of small businesses, says Andrea Zuniga, vice president of legislative affairs for Paid Leave for the United States, a three-year-old advocacy and lobbying group. “On the ground when we are talking to small business owners, they say, ‘I’d love to pay this benefit but I don’t have the means to do it.’”
But Zuniga points to systems being used in states that use an insurance model to fund paid-leave programs. In Rhode Island, for instance, workers pay a 1.2% tax on the first $68,100 in earnings, she said. Benefits come to about 60% of an employee’s weekly wage, up to a maximum weekly benefit of $817.
Another concern is how businesses deal with covering the work of parents or caregivers on leave. Larger firms can redistribute the work, and the change creates minimal ripples. But what about in smaller workplaces or on teams? If a worker disappears for six weeks or six months, temps must be brought in.
“It is quite common for a temp to be hired for several months to cover somebody on parental leave,” says Bidwell, adding that it’s “obviously not a painless process.”
Still, short-term pain might be a good investment in the long-term gain. Friedman says some of the best evidence for why paid parental leave is a good idea comes from California and other states that have already enacted forms of Family Temporary Disability Insurance programs.
“The California model has employers and employees pitching in a tiny amount, two-tenths of a percent of payroll contributions, that funds a program that has resulted in better retention of women in companies and without the anticipated, but not observed, fears of loss of productivity. That model seems to be working,” says Friedman. “You get to hold onto talented and experienced people and reduce the likelihood of all of the indirect costs of employees having to find support to take care of their children and the elderly, especially when unexpected problems come up. It’s a win for everybody.”
But legal provisions for paid parental leave are one thing; how it plays out in reality another. Given how competitive the workplace has become, some workers may hesitate to take time off, especially where there is a certain kind of corporate culture.
Unfortunately, there is still career stigma attached to taking leave, says Creary. “In order for the fear of missing out at work to lessen, the culture of workplaces would need to change more broadly to value taking time off. So the stigma is that someone is taking time off at all—not that they’re just taking time off for parental leave.”
Taking time off means working extra hard when you get back, says Bidwell, “reactivating your social network, catching up on what you’ve missed, that sort of thing. Obviously if you are just coming back from parental leave you are already massively stretched. Ultimately, there is a basic tension between extremely competitive careers that reward those who work hardest, and having a rich, fulfilling family life, and those can be difficult of tensions to reconcile.”
It is possible that the more common parental leave becomes, the less serious of a concern this will be. “It’s a bit of a chicken and egg problem,” Bidwell says.
In fact, many feel it may not be a problem much longer. Says Friedman: “Change is finally here.”