The president's paid leave policy is a positive step for American families

The proposal for a parental paid leave policy in the White House budget is a positive step forward to help American families balance their dual responsibilities toward work and family. The U.S. needs a paid leave policy to allow families to take time off after the birth or adoption of a child, to take care of relatives at their time of need, and for personal medical reasons.

However, the only guaranteed time off that workers get is unpaid, through the Family and Medical Leave Act (MFLA). Under the FMLA, workers can take 12 weeks of job-protected leave, but many low-income workers get no benefit because the FMLA eligibility rules require workers to put in sufficient hours with the same employer, and workers employed at firms with fewer than 50 employees are exempt from this guarantee.

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The Trump proposal allows six weeks of paid time off to both mothers and fathers at the time of birth (or adoption) of a child. The leave will be administered and funded through state unemployment insurance systems. On the positive side, the policy is gender neutral, an important change from the campaign’s maternity-only policy. This recognizes the important role that fathers play in the early months of bonding with and caring for their children. The gender neutrality also reduces the likelihood that employers will discriminate against women of childbearing years, since both men and women are equally eligible for the leave.

 

However, the implementation of the policy through state unemployment insurance programs raises questions. First, it is not clear whether the states are being mandated to provide this leave or are being encouraged to do so. The budget document asserts that states will be “allowed” to set up their programs, but also that they are “required” to provide six weeks of leave. If the states are mandated to provide the leave, then this creates uncertainty about how states will be able to generate funding for these programs.

Currently, unemployment insurance systems are funded largely through employer payroll taxes. Will states increase these taxes to generate new funds to provide paid leave? Will states go along with this? On the other hand, if the program is voluntary, then it is unlikely that many states will opt in, given the costs of setting up a new administrative system or modifying an existing system, and the new taxes that might need to be raised.

So there is no guarantee that workers would benefit from this policy. The proposal’s stated funding comes through reforms to unemployment insurance and ending improper payments, both of which seem to suggest an uncertain, unsteady and probably unreliable funding stream for a program that will require a sustained source of revenues.

Second, state unemployment insurance systems vary widely in terms of eligibility and the generosity of the benefit. For instance, in New York, you have to show that you earned at least $1,900 in one calendar quarter in the base period before applying for the benefit. In California, the minimum amount is $1,300. This implies that not all working parents would be eligible for paid leave benefits across the U.S., and even parents with the same earnings may face different levels of benefits across U.S. states.

Third, wage replacement rates in unemployment insurance systems are typically 45 percent to 50 percent of lost wages. This replacement rate would be less than what existing state-level paid leave systems provide. For instance, California’s paid leave program has a wage replacement rate of 55 percent. Even then, surveys show that for most low income workers, this wage replacement is too low to allow them to take much time off. Under this system, despite having six weeks of paid leave available, many workers would likely return to work within a couple of weeks, the situation we face today.

All in all, we need a paid leave policy that allows Americans to continue to balance work-life responsibilities. This is important not just for the health of the family; it is also good economics. Encouraging labor force participation and removing the obstacles that are holding Americans back from fully achieving their potential are key to a productive economy, as Federal Reserve Chair Janet Yellen highlighted recently.

A paid parental leave policy is a step in the right direction. However, figuring out the right design for such a policy so that it improves access to leave especially for lower income households, is not burdensome on employers, has a well-defined and stable source of funding, and provides at the very least, a basic minimum guarantee to all parents irrespective of where they might be located in the U.S., is the only way to turn this pipedream into a genuine, practical reality for all Americans.

Aparna Mathur, Ph.D., is a resident scholar in economic policy studies at the American Enterprise Institute, where her research focuses on income inequality, tax policy, labor markets, and small business.


The views expressed by contributors are their own and are not the views of The Hill.