The Business Case for Paid Family and Medical Leave

The Business Case for Paid Family and Medical Leave

Carly Morgan

Head Writer

Of the 193 countries in the United Nations, 185 provide paid family leave at the national level. Of the eight that do not, nearly all of them are classified as “developing” countries; all of them, that is, except one: the United States.

The United States is the only industrialized nation in the world that does not guarantee workers access to paid time off from work in order to care for a new child or a seriously ill family member. Since the turn of the century, three states—California, New Jersey, and Rhode Island—have enacted paid family leave programs. In April 2016, New York also passed paid leave legislation which, although not scheduled to take effect until 2018, will constitute the country’s most comprehensive and generous plan of its kind to date. Still, though, even our country’s most generous state-level plan pales in comparison to national leave policies throughout the rest of the industrialized first-world, and the United States remains its own unique anomaly in its unwillingness to adopt similar measures at the federal level.

Maybe, we’re onto something; maybe the United States knows something that the rest of the world doesn’t. By refusing to blindly follow the lead of the rest of the Western world, perhaps we’ve dodged an “anti-business” bullet. But it seems rather presumptuous to dismiss the possibility that what’s worked for businesses the world over, might also work for American businesses.

Family Leave in the United States
In the United States, efforts to achieve paid leave at the national level have culminated—and, subsequently, stagnated—in the Family and Medical Leave Act (FMLA). Having passed in both the House and the Senate in 1991 and 1992, only to be met with a veto from President George H.W. Bush, the FMLA was finally ratified in 1993. It made its way through Congress (again) with strong bipartisan support, and was the first piece of legislation signed by President Bill Clinton following his inauguration.

Shortly thereafter, a congressional newcomer by the name of John Boehner lamented the “demise” of US businesses that he foresaw as the inevitable consequence of such legislation. Joining Boehner in his disapproval were “business-minded” Republican officials, and the US Chamber of Commerce. Conversely, Democratic officials, women’s groups, and organized labor celebrated the victory, seeing the bare bones provisions of the FMLA as a great place to start on the road to paid leave. More than twenty years later, it’s clear that the FMLA was neither the private sector’s mortal blow, nor the source of legislative momentum that paid leave advocates had believed it to be.

The FMLA guarantees twelve weeks of job-protected leave that workers can use to care for a new child or a sick family member. It does not provide any form of wage replacement. Consequently, there are many workers for whom the FMLA has made little difference. When every paycheck goes toward meeting basic living requirements, for example, a new child or a severely ill family member leaves workers to choose between economic security, and the health and wellbeing of their families.

The urgency of this decision is felt most among those in the bottom- and middle-layers of income distribution, as access to employer-provided paid leave is largely reserved for those in the upper levels of the labor force.

The employee eligibility requirements under the FMLA limit the law’s reach even further: in order to qualify for job-protected leave, an employee must have worked for their current employer for at least twelve months, and have logged at least 1,250 hours in the year preceding the leave. This annual hourly minimum renders many part-time workers ineligible, as 1,250 hours in a year equals roughly 24 hours per week.

It is not unusual for low-wage earners to have to cobble together a livable income by working two or three part-time jobs, making them ineligible for job-protected leave at each of them. As it turns out, women are also more likely than men to work part-time, and are, therefore, less likely to meet the FMLA’s annual hourly requirements than their male counterparts. Further exacerbating this shortcoming of the law is the fact that women are more likely to take some form of family leave in order to care for someone else, while men are, statistically speaking, more likely to take leave as a result of their own illness.

The FMLA was aimed toward shrinking two specific gaps in wealth concentration: the growing disparity between the country’s highest and lowest earners; and the gap in earnings between men and women in the workplace. So far, it has had a negligible impact on both fronts.

The grassroots push for national leave gained popular support in the late 1970s, as the number of women in the workforce began to increase dramatically. And lately, the campaign for paid leave has only grown stronger, as women’s (and mothers’) participation in the workforce has only continued to grow: according to data from the United States Department of Labor (DOL), women made up 47 percent of the civilian labor force in 2010; and data from the Bureau of Labor Statistics shows that the workforce participation rate for mothers with children under the age of six rose from 39 percent in 1975, to 64 percent in 2015.

Once upon a time, women were considered the de facto family care providers, often withdrawing from the workforce entirely in order to raise children or care for family members. But dual-earner families are no longer the exception; they’re the majority. And with inflation rate growth outpacing that of most workers’ annual earnings, having two members of a household in the workforce has become a matter of economic necessity for many. Despite increased workforce participation, however, women are still earning considerably less than men: the DOL reports that in 2010, the median weekly income for women in full-time positions was $669, or roughly 81 percent of men’s median weekly income of $824. Perhaps even more telling, though, is the fact that when comparing the median weekly earnings of workers aged 16 to 24, the discrepancy is much smaller, with young women earning 95 percent of what young men earn.

The phenomenon to which these statistics attest has since been dubbed “the motherhood penalty.” Because what distinguishes the average 16-24 year-old female worker from her older counterparts? Babies. In 2000, the average age of first-time moms was 25; by 2014, that number had increased to just over 26. A fundamental source of gender inequality in modern society is the wage penalty typically incurred by women when they become mothers. According to a recent study conducted by sociologist Ruth Milkman, even when mothers do not drastically reduce the number of hours they work after having children, their average earnings are still less than those of childless women. This is especially true for women in managerial and professional positions; conversely, fathers in these occupational categories typically enjoy a wage premium, outearning their childless counterparts thanks to the aptly named “fatherhood bonus.”

When women do not have leave benefits, they are more likely to exit the workforce or switch to lower-paid part-time jobs. Conversely, when women do have access to leave, they are more likely to return to the same company after childbirth.That likelihood increases the incentive for employers to invest in firm-specific training for women employees, better equipping women to move up the proverbial ladder and increase their earning potential. Of the twelve percent of the working population with access to employer-provided paid family leave, however, the vast majority of those workers are men; and even though women continue to provide a disproportionate share of childcare, those leave benefits are almost never extended to workers’ spouses or domestic partners.But access to paid family leave wouldn’t just be of benefit to women; increasingly, men are citing “work-life balance” as a priority when deciding where to work, suggesting that women’s increased presence in the workplace has precipitated a cultural shift in the home: the childcare load, though still unevenly distributed, is beginning to even out. Today, the ideals of so-called “New Fatherhood,” a term coined by sociologists K. Henwood and J. Procter, require that fathers be actively involved in the daily lives of their children; caregiving is no longer a strictly maternal endeavor. This, in turn, has given way to the “daddy double-bind”: the impossibility of successfully fulfilling both the role of “breadwinner” (a vestigial condition of the hegemonic male model) and “fully participatory parent” (a manifestation of gender roles becoming less restrictive).

Now, men are facing greater demands at home than in previous generations, and the youngest men in today’s workforce (i.e., Millennials) have a more egalitarian understanding of familial roles than any generation preceding. In a similar vein, women are working more hours and participating more fully in the labor force, despite no matched decrease in their responsibilities as caregivers.

The FMLA, though limited in its provisions, constitutes formal acknowledgment by the federal government that there does exist a need for some form of intervention in helping people balance the concurrent demands of work and family life.

With an eye toward achieving that very goal, Senator Kirsten Gillibrand (D-NY) and Representative Rosa DeLauro (D-CT) introduced the Family and Medical Insurance Leave (FAMILY) Act to Congress first in 2013, and again in 2015. If approved, the FAMILY Act would guarantee workers 66 percent wage replacement for up to twelve weeks of maternity leave, paternity leave, personal medical leave, and/or spousal support. Leave packages would be bankrolled by employer and employee contributions of 0.2 percent of wages, or a two cent contribution for every ten dollars earned. That means that the average worker contribution would be approximately $1.38 per week, and payroll deductions would be capped at $4.36 per week for the highest earners. The disbursement of paid leave benefits would be handled by the Office of Paid Family and Medical Leave, which the FAMILY Act establishes within the existing framework of the Social Security Administration.

The FAMILY Act has been stalled in Congress since its reintroduction, but polling indicates strong bipartisan support: in a national election poll conducted this year, 79 percent of voters said that they thought it was important for Congress to consider laws that would provide workers with paid family and medical leave. Among the voting populace, the correlation between party affiliation and attitude towards family leave is quite weak; after all, striking a healthy work-life balance is a challenge with which everyone is likely to be confronted at some point in their life. At the level of the political and business elite, however, we can see a more traditional party-line divide between those in favor of, and those opposed to, paid family leave. In this way, the campaign for paid family and medical leave constitutes what Ruth Milkman calls “the prototypical case over work-family policy in the United States”: the US Chamber of Commerce and small business groups are vehement in their opposition, while organized labor and the women’s movement constitute the loudest advocating voice.

When it comes to the provision of paid family leave, the United States’ divergence from virtually every other Western democracy represents a fundamental ideological difference between a neoliberal capitalist state, and a social democratic welfare state. In Getting Paid While Taking Time: The Women’s Movement and the Development of Paid Family Leave Policies in the United States, Megan Sholar writes, “Citizens [in the US] embrace an individualist culture and free market rhetoric, and they are less likely to support … an active role for government than most other Western democracies.” The United States government, she continues, “has taken a limited role in providing social welfare benefits” like paid family and medical leave due, in part, to the fact that the US, as a whole, “places greater emphasis on the private sector to provide such protections.”

But what if our faith in the market is, in this case, truly blind faith? What if our fixation on the neoliberal ideals of our capitalist society has left us wilfully ignorant to the possibility of something better? As luck would have it, we don’t have to resort to guesswork.

California’s Paid Family Leave Policy
On September 23, 2002, California Governor Gray Davis signed the nation’s first comprehensive paid family leave program. California’s Paid Family Leave (PFL) provides up to six weeks of partial wage replacement (i.e., 55 percent of weekly earnings, with a maximum of $1,000 per week) for eligible workers who take time off either to bond with a new baby or care for a seriously ill parent, child, spouse, or domestic partner. In 2013, eligibility was expanded to include workers caring for a seriously ill parent-in-law, grandparent, grandchild, or sibling. In a nod toward gender equality, both new mothers and new fathers can take time off to bond with a new child; and, in recognition of the fact that not every family is structured in exactly the same way, paid bonding leave is also extended to domestic partners and adoptive parents.

California’s PFL is funded by a modest, employee-paid payroll tax and, as a result, is revenue neutral; it is of no direct cost to employers or the state government. PFL was implemented as an extension of California’s decades-old State Disability Insurance (SDI) system, first established in 1946. As such, it is funded by a slight increase to the employee wage deduction already in place to fund SDI. As of this year, the SDI tax rate is 0.9 percent on the first $106,743 in wages. Meaning: no employee is paying more than $960.68 per year into California’s entire State Disability Insurance program, even after the introduction of a relatively generous paid leave policy.

While the eligibility requirements for the FMLA render nearly half of the US workforce ineligible, PFL’s eligibility requirements are minimal, so access to coverage is nearly universal: claimants must only have earned $300 in wages from a private-sector employer in the state during any quarter in what’s known as the “base period,” which typically amounts to five to seven months before filing a claim. Though PFL does not offer any job protection, some California workers are able to use the FMLA in conjunction with PFL to that effect. For those who do not meet the FMLA requirements, though, PFL’s lack of job protection leaves some unable to take advantage of the paid leave for fear of getting fired.

When PFL was proposed in 2002, the loudest dissenting voice was that of the California Chamber of Commerce and its affiliates. Their opposition, rooted in market fundamentalism, represented an ideological opposition to decommodification in virtually any form. The California Chamber argued that the bill would be a “job killer,” particularly harmful to small businesses that lacked the resources necessary to contend with prolonged worker absences. The Chamber worried, too, about the potential for fraud and abuse of the system; that workers would come to resent one another if they had to shoulder a disproportionate workload in another’s absence; that California businesses would be made less competitive; and that state-mandated paid leave would create a disincentive for outside investment in the state.

As it turns out, none of those fears materialized.

In Unfinished Business: Paid Family Leave in California and the Future of U.S. Work-Family Policy, Milkman cites a survey that she and her colleagues conducted of California business owners in 2008, five and a half years after the passage of PFL, to find out how the law had impacted their respective “bottom lines.” The results indicate that the vast majority of employers saw “no effects or positive effects on their productivity and profitability (or, in the case of non-profit organizations, on their performance).” For the few employers who did report higher costs associated with accommodating employee absences, they also found that “to the extent that the PFL program reduced turnover ... the cost savings from improved retention helps to balance these additional costs.” In a similar study conducted by the Center for Economic and Policy Research, California business owners overwhelmingly reported positive or no negative effects on productivity (89 percent), turnover (93 percent), and worker morale (99 percent ) in the wake of PFL.

But wait a minute: just because the concerns of the California business lobby haven’t materialized (same goes for Rhode Island and New Jersey, in case you were wondering), that doesn’t necessarily make a case for paid family leave. To establish a strong business case for paid family leave, one has to go beyond merely disproving the worst Doom’s Day predictions of its dissenters.

The Business Case for Paid Family Leave
Despite the United States’ lack of a federally sponsored paid leave program, twelve percent of American workers still have access to some form of paid family leave through their employer. Of the employer-sponsored packages available to American workers, the most generous ones can be found in the tech industry.

For example: Google offers employees 22 weeks of paid maternity leave and 12 weeks of paid paternity leave; Facebook provides four full months of paid leave to all new parents; employees at Microsoft can take advantage of up to 20 weeks paid maternity, and 12 weeks paid paternity, leave; and at Amazon, new moms and dads alike can take up to 20 weeks of paid leave to care for and bond with a new child. In the technology industry—and especially among the firms leading the field—attracting top talent is of critical importance. As it turns out, in today’s economy, family-friendly employer policies are a key component in attracting that talent.

As a chamber of commerce executive, you might be thinking, “Of course places like Google and Amazon can offer leave packages like that. But what about the small businesses that make up most of my member base? They can’t afford to do that.”

Which is exactly my point.

Many businesses, especially small businesses, cannot afford to fund generous leave policies on their own; tech start-ups can’t compete with the Zuckerbergs of the world when it comes to providing paid family leave packages. That’s why a program like California’s PFL, as a revenue-neutral measure that is of no direct cost to employers, actually makes smaller firms more competitive by facilitating their ability to provide the kind of family-friendly leave packages that workers are looking for. In fact, according to a January 2015 report published by the Center for Partnership Studies, 83 percent of women, and 82 percent of men, ages 21 to 29, “put having time to spend with their families at the top of their priority list [when seeking employment], way ahead of a high salary and a prestigious job.”

Of course, when it comes to any business decision, there are always two sides to the “cost/benefit” coin. Paid family leave policies might mean that an employer incurs some expense in arranging coverage of a worker’s duties while that worker is on leave (as was the case for a small percentage of California businesses), but the present alternative is likely even more costly. Multiple studies have shown, for instance, that women are more likely to return to work for the same employer after giving birth if that employer provides some sort of maternity leave. In California, the reduction in employee turnover precipitated by PFL generated savings for employers by reducing (or negating) the costs associated with hiring new workers.

Employee turnover is expensive. In replacing an employee, time and money are spent advertising the open position and/or recruiting new prospects; reviewing resumes, conducting phone interviews and (sometimes multiple rounds of) in-person interviews; calling references and running background checks; and finally, actually training the new employee. Plus, there are the additional costs associated with the temporary decrease in productivity likely to manifest as a new hire “learns the ropes,” so to speak. All told, employers can expect to spend roughly 150 percent of a salaried employee’s yearly pay to replace them with a new worker. Replacing an hourly worker, though not quite as costly an endeavor, also doesn’t happen for free, and employers are likely to spend anywhere between 50 and 70 percent of that worker’s annual pay over the course of replacing them.

The main costs associated with family leave policies, on the other hand, include hiring a temporary replacement (though this would not be a universal necessity); the potential decrease in productivity as other workers strive to fulfill their own duties while covering for the absent worker; and the cost of benefits for the worker while they aren’t working. Financially, the cost of replacing someone who feels compelled to leave the workforce due to increasing family obligations are likely higher than those incurred through their temporary absence and eventual return. Not to mention that the potential cost of not offering family leave policies includes the loss of talented, capable, workers, and difficulty attracting top-tier talent. It may not come as a surprise, then, that a 2001 study found that firms offering paid parental leave have 2.5 percent higher profits than firms that don’t.

Paid family leave, far from being any sort of “job killer,” has in fact proven to be a positive force in California’s state economy.

What Can Chambers Do?
In December 2015, consulting firm Luntz Global surveyed 1,000 C-level executives from small, medium, and large business all over the country on issues of workplace-related public policy measures. Of these businesses, two-thirds of them were members of their area chambers of commerce. When asked about paid parental leave, 72 percent of respondents said that they favored increased maternity leave time; 9 percent opposed. For either mandated or increased paternity leave, 82 percent of respondents were in favor; 7 percent were opposed. Also of note is the fact that support for increased paternity leave was found to be even stronger among chamber members (89 percent) than non-members (79 percent).

Workplaces that are equally as attractive to women as they are to men have access to a broader talent pool. With the mass-retirement of Baby Boomers already underway, the workforce is shrinking; in order to mitigate the detrimental effects that may have on local economies as businesses struggle to recruit new workers, it will be vital to keep women engaged and participatory as active members of the workforce. And, as Milkman points out, “Although critics claim that paid leave will reduce company profits, the fact that all other developed countries have paid leave demonstrates that such policies do not undermine economic growth and competitiveness.”

Despite strong bipartisan support for paid family leave, both outside and within the business community, many chambers of commerce continue to publicly oppose any such measure. As the voices of business, it is antithetical to the very role of a chamber of commerce to actively oppose workplace reforms of which its members are in support. Of course, not every community is the same: it would be naive to assume that the majority of business owners in every municipality across the country would be in favor of paid family leave legislation. But there does seem to exist a sort of disconnect, somewhere; otherwise, chambers of commerce and business executives wouldn’t appear to be on opposite sides of this issue.

For any chamber of commerce executive, therefore, it might be a worthwhile endeavor to formally poll business owners in their area to get their take on paid leave benefits. Currently, there are ongoing efforts in at least fifteen other states to pass paid family leave laws. Chambers of commerce could play an important role in getting those laws on the books, should they find that a majority of their members are in support of them. And, if state-level paid family leave doesn’t seem like an achievable reality at this point, there remains the possibility of passing city-level paid family leave legislation by following the lead of such cities as Pittsburgh; Kansas City, Missouri; Austin, Texas; and New York City.

Business case aside, though, there is also a strong human case to be made for paid family and medical leave. Among children whose mothers who return to work less than twelve weeks after giving birth, for example, there is an overall decrease in the frequency of well-baby visits and immunizations. According to the Center for American Progress, women with access to paid family leave are more likely to stay in the workforce and off of public assistance. And in terms of caring for sick family members, studies have shown that elderly patients recover from illness faster, and have shorter hospital stays, when cared for by a family member.

What that tells us is that the costs associated with paid family leave don’t just disappear in the absence of paid leave legislation; they are simply borne elsewhere. The costs are reflected, instead, in the diminished vitality of our elderly population; in the long-term effects of substandard infant care; in the number of people for ced to withdraw from the workforce and resort to public assistance in order to make ends meet during times of overwhelming familial demands; and in the frequency with which American workers are forced to make the impossible decision between providing for their family, and caring for them.

Chambers of commerce are, first and foremost, the “voices of business” in their communities. But when the whole community does better, so do businesses. This is not a zero-sum game; one person’s gain need not be someone else’s loss. Empowering workers through the provision of paid family leave ultimately strengthens the families upon which communities are founded; upon whose financial security hinges the vitality of local economies, and the prosperity of the business owners who shape our communities.