The hidden costs of life without paid family medical leave

The hidden costs of life without paid family medical leave
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With the Senate the next to consider paid leave, opponents are still saying it’s too expensive. Yet as our data shows, nearly every country — 186 — provides paid leave to new mothers, the majority provide paid leave to fathers, and 181 countries guarantee paid sick leave nationally.

If paid leave is so unaffordable, how are all the other countries paying for it?

The first part of the answer is it costs far less than other social programs. Given that paid leave covers just a few months at a time over the life course, its affordability should come as little surprise. The U.S. has long shown it’s feasible to fund decades of retirement, and these investments have been both highly impactful and remarkably popular. Paid leave, which is supported by over 80 percent of Americans, would be no different.

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The second part of the answer is the returns on investment in paid leave are enormous. This is because paid family medical leave supports women — who disproportionately shoulder caregiving responsibilities — to stay economically active, and women are a powerful engine of economic growth. The OECD reported in 2015 that equalizing women’s and men’s labor force participation rates by 2030 would result in a 12 percent boost to GDP across high-income countries. In the U.S., this would be the equivalent of $2.64 trillion per year.  Other estimates are even higher. Leading business consultants at McKinsey estimated that by 2025 the U.S. could add another $4.3 trillion to annual GDP by closing the gender gaps in the workforce — an increase that could far more than fund all spending bills under consideration.  

Paid family medical leave could help close the gender gaps that are so costly to the economy in important ways. Research has repeatedly demonstrated that providing paid parental leave boosts women’s employment: In countries worldwide, mothers who have access to paid leave are more likely to remain in the labor force, work more hours and return to the same job. The benefits for employers are substantial: Reducing turnover costs and retaining employees with experience and expertise can easily save companies billions each year. It should come as no surprise, then, that over 300 companies and 160 executives signed an open letter to Congress urging them to adopt paid leave.

Against this backdrop, any reasonable estimate would find that enacting paid family medical leave would quickly pay for itself. The Biden administration estimated that its original paid leave proposal would cost $225 billion over 10 years. In response, critics questioned whether this was the full cost, as well as whether the U.S. could afford it. Yet even if we evaluate a markedly expanded and more generous policy, covering all Americans from the beginning — with a significantly higher price tag — we find that the benefits would quickly exceed the costs.

For example, if we enacted three months of paid parental leave, paid at 100 percent of the median earnings of a 30-year-old, total costs would amount to around $66 billion per year if it covered all parents — including those working-full time and part-time, and those in both the formal and informal economy. Estimating based on U.S. rates of hospitalization and time for recovery, a far more generous policy than is in the legislation, covering lengthier serious personal illness and family illness might cost an additional $117 billion for the entire U.S. if paid at 100 percent of wages up to the median, or $94 billion if up to 80 percent. 

Yet even this far more expansive policy would quickly yield more economic returns than its cost. Let’s take the more conservative estimate of economic gains if we closed the gender gap in the labor force: $2.64 trillion per year. Even if adopting paid leave only narrowed the gap by 15 percent, it would yield $396 billion per year — far exceeding the cost of even this more generous paid leave. And 15 percent itself is a conservative estimate: Past research has shown that the U.S.’s lack of “family-friendly policies” — in particular, paid leave — drives the gender gap and was responsible for nearly a third of the U.S. decline in female labor force participation from 1990 to 2010, when it fell from sixth-highest among 22 OECD countries to 17th.

Leading economies have recognized the potential of paid family medical leave. Take two: Denmark and Japan. Both are ranked among the top ten most competitive countries in the world by business leaders at the World Economic Forum. Both also guarantee around a year of leave to each parent: Japan guarantees 52 weeks to both mothers and fathers, to be taken within the first 14 months if parents share leave, while Denmark guarantees 46 weeks that parents can share, along with 18 weeks reserved for the mother. Moreover, Japan guarantees up to 18 months of personal paid sick leave, Denmark guarantees sick leave for as long as an employee needs it, and both have generous family medical leave.

So how do they make it happen in practice? The leaves had made their economies stronger and more competitive. Both countries, like countries around the world, have insurance systems to ensure the costs are low and steady each year, instead of hitting a small business when an employee gets sick. 

While Congress must continue to debate specific design choices, one thing is clear: Adopting a comprehensive, inclusive paid leave policy is readily achievable and would have strong economic returns. As the U.S. looks to build back from the pandemic, we can’t afford to let this opportunity pass us by.  

Jody Heymann is a distinguished professor in the Faculties of Public Affairs and Public Health at UCLA and founding director of the WORLD Policy Analysis Center. Aleta Sprague is an attorney and senior legal analyst at WORLD.