Welfare State Paper 1 Paid Family Leave copy

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thewyomingprosperityproject.com

Paid Family Leave:

Egalitarian Victory, Conservative Surrender – And A Budget Disaster

Sven R Larson

Hill City Skunkworks, LLC

PO Box 1382

Cheyenne, WY

hillcityskunkworks@gmail.com

Online version, July 2017

About the Author:

Ph.D., political economist. Dr. Larson has a total of 20 years of experience in politics, political economy and

public policy, stretching across three countries. His research is published by referee journals and freemarket

think tanks. He is the author of several books, including The Rise of Big Government: How

Egalitarianism Conquered America (forthc., Routledge Oct 2017) and Industrial Poverty

(Ashgate/Routledge 2014) about the welfare state and the European crisis. A U.S. citizen, he lives and works

in Cheyenne, Wyo. where he runs the economic policy project Wyoming Prosperity.


S R Larson Paid Family Leave Wyoming Prosperity

America’s brand new entitlement program

In his budget for fiscal year 2018, President Donald Trump proposed the introduction of a new,

major entitlement program. Called “paid parental leave”, this program allows working Americans

to receive a check from government when they have to be home to care for a newborn or adopted

baby. It will also presumably be a vehicle for federally paid sick leave.

As presented in the president’s budget, the paid-leave program is not supposed to cost taxpayers

a dime extra. The $1.8-$1.9 billion estimated annual cost will supposedly be covered by savings

emerging from improved efficiency in the unemployment insurance program.

Predictably, the program is being hailed as an opening for bipartisanship. In an article in the

USA Today on July 22, Steven Findlay of Kaiser Health News summarized the political positions.

The president’s initiative, he says, proposes

six weeks of paid leave for mothers and fathers … funded by restructuring the federal

unemployment insurance system. Congressional Democrats, meanwhile, have

reintroduced the Family and Medical Insurance Leave, or FAMILY, Act, which they first

submitted in 2013. It would permit all workers to take up to 60 individual days of paid

leave per year to care for a new child, a sick family member or one’s own illness. Workers

would receive up to 66% of their regular wages to a maximum $1,000 per week. The

program, initially introduced in 2013, would be funded by a 0.4% payroll tax on workers’

wages, split evenly between employers and employees. … Republican lawmakers have

countered this year with the Strong Families Act. That bill would give employers offering

at least two weeks of paid family or medical leave a 25% tax credit for wages paid to

workers taking up to 12 weeks of leave. The credit would be capped at $3,000 per

employee per year. The credit would cease entirely two years after enactment.

To bring paid family leave forward on Capitol Hill, President Trump has put his daughter Ivanka

in charge of Congressional outreach. On June 20, Politico reported:

Ivanka Trump is set to meet Tuesday morning with Sens. Marco Rubio (R-Fla.), Deb

Fischer (R-Neb.) and others to discuss paid family leave, according to two sources with

knowledge of the plans. The meeting comes as the Trump administration pushes a

proposal for six weeks of mandatory paid leave for mothers and fathers. That is an

unpopular proposal with many in a Republican-controlled Congress, but the idea has

gained traction among more moderate members.

It makes sense for Ms. Trump to meet with Senator Fischer (R-NE). On February 9, 2017, this

year she introduced the aforementioned Strong Families Act. Despite the party-line divide

between this proposal and the Democrat-supported FAMILY Act, differences are not very large.

The Strong Families Act suggests a tax credit to employers who offer paid family and medical

leave, while the FAMILY Act proposes a traditional entitlement-benefit system with the federal

government cutting checks for eligible citizens. However, despite the apparent differences in

construction, all that is needed to effectively bring these two proposals in line with one another is

to retool the tax credit in the Strong Families Act as a refundable credit. That would make

employers and their employees eligible regardless of the taxes they pay.

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Other differences are limited to the size of the benefits and the amount of leave guaranteed:

Strong Families Act

Sen. Fischer (R-NE)

S.2354, 114th Congress

Type Tax credit

Qualification criteria Person is an employee

Leave time guaranteed 12 weeks/year

Benefits Credit cap at $3,000

FAMILY Act

Sen. Gillibrand (D-NY)

S.337, 115th Congress

Entitlement benefit

12 months of prior inc.

60 days/year

$8,000/year

If the tax credit in the Strong Families Act becomes refundable, it is a minor issue to synchronize

qualification criteria, guaranteed leave and benefits between the two proposals.

Both bills are constructed according to the same redistributive architecture. By capping benefits,

the FAMILY Act replaces a higher share of low-income earners’ wages. Likewise, by capping the

tax credit, the Strong Families Act incentivizes leave among low-income employees while disincentivizing

it among high-income employees.

Republicans have long supported redistributive entitlement programs by perpetuating and

expanding them; prior to the Affordable Care Act (ACA), no Republican-led Congress had ever

voted for a repeal or phase-out of any entitlement program. Their failure to deliver a repeal or

replacement of the ACA after the 2016 election is further evidence of their tacit or overt support

for the redistributive welfare state.

In terms of paid family leave, though, their support is new. As recently as in 2015 Congressional

Republicans were still opposed to it. Now that the Trump administration has their own proposal,

it is very likely that paid family leave will become the law of the land in one form or another.

The rush to create such a program is confounding. Regardless of which version of paid leave

Congress would pass, the program is going to grow into a major expense item in the federal

budget. Based on experience with similar programs in European countries, it is possible that

federal paid family leave – which is the more commonly used term – could end up costing

taxpayers as much as Social Security.

President Trump’s proposed program, and his administration’s material on the issue, make only

one reference to the expected cost of the program, namely in table S-6 of the president’s budget.

There, the expected annual cost is reported to be $1.85 billion per year for the next ten years.

More realistic estimates point to much higher numbers. Even though these estimates make no

attempts at calculating the cost based on experience with paid-leave programs, some of them do

at least provide a more realistic picture of the expected cost than does President Trump’s budget.

A later section examines these estimates; one of them runs as high as $391 billion for a full-fledged

program. However, the maximum entitlement value – the amount of money that eligible citizens

could claim from the program if they used it to its fullest extent – could be almost $1 trillion.

Ahead of an examination of the fiscal and economic impact of paid leave, it is important to

examine the program from the perspective of ideological values. These values would be the guide

to a broader discussion of how an expansion of redistributive entitlements would reshape the

American economy and American society. Since paid family leave is a major contribution toward

closing the gap between the American welfare state and its Scandinavian peers, a discussion is

merited about whether or not United States of America should become a full-fledged

Scandinavian welfare state.

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Conservative surrender

The national debate over paid family leave, to the extent that it exists, is concentrated to technical

aspects of existing programs. There is no discussion about the potential fiscal impact of the

various versions proposed, nor is there a conversation about how the program may contribute to

changing our country culturally, socially and morally.

The absence of the latter conversation is particularly noteworthy, given how broad a support

that paid family leave has gathered among conservatives. It is also noteworthy given how

elaborate the American welfare state already is: as of today, our country is 2.5 entitlement

programs short of becoming a standard Scandinavian welfare state. We do not have paid family

leave; we do not have a universal child-care program; and thanks to the Affordable Care Act we

are halfway to a single-payer health care system.

With his support for paid family leave, President Trump has most certainly prepared the ground

for this entitlement program to become law of the land. When that happens, only universal child

care and the final pieces of single-payer health care remain. 1

The cultural, social and economic consequences of completing the Scandinavian welfare state

in America are of such proportions that they merit a thorough debate. This broader conversation

about entitlements and America’s future should have taken place on the initiative of those

conservatives who have now come out, in some cases vigorously, in favor of paid family leave.

Their responsibility for forfeiting the value conversation is all the more conspicuous given the

egalitarian ideological nature of an entitlement program such as paid family leave. Its tax-andspend

balance is strongly redistributive, with the tax being paid by all income earners while the

benefits are capped and biased in favor of low-income families. Furthermore, with government

socializing another private responsibility, people are further discouraged from pursuing selfdetermination

and from striving to provide for their families.

A conservative proponent for paid family leave could counter that when there are meaningful

economic gains to be reaped from an expansion of the welfare state, it makes sense to pursue that

expansion and to set aside ideological considerations. Unfortunately, as this paper explains, there

is no research that shows any meaningful economic benefits from government-run, tax-funded

paid family leave programs. On the contrary, a large body of academic and public policy research

concludes – albeit reluctantly – that paid family leave makes no positive economic difference

whatsoever.

Part of the existing literature, especially on the academic side, reports experiences with

European paid-leave programs. There, taxpayers have funded paid-leave programs since the mid-

20 th century. A later section presents this research; for now, it is important to note that the

absence of a U.S. paid-leave program in itself not an argument for creating one.

Conservative egalitarianism: a political oxymoron

As yet another example of how conservatives employ egalitarian reasoning for welfare-state

expansion, a 2015 report from American Action Forum (AAF) builds its argument on the fact that

1 For the complete story of the welfare-state victory in the United States, see:

Larson, Sven: The Rise of Big Government: How Egalitarianism Conquered America; London, UK:

Routledge, forthcoming Oct. 2017. For pre-orders, see the Barnes and Noble website.

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women with a newborn child suffer from high unemployment. The AAF also explains that this

demographic is almost twice as likely to be in poverty as the U.S. population in general.

In this report, the AAF does not come out in explicit support of paid family leave. They limit

their argument to proposing improved workplace protections for pregnant women, as well as

measures improving paid family leave options without directly creating a federal entitlement

program. Their favored method for expanding paid-leave coverage is tax credits for employers

similar to what is suggested in the Strong Families Act.

A year later, in 2016, the AAF leaps from the tax-credit method for providing paid leave to

proposing traditional egalitarian entitlement benefits. Ben Gitis, the AAF’s director of labor

market policy, positioned the organization’s opinion on paid leave close to the Democratsponsored

FAMILY Act. In doing so he confirmed how thin the line actually is between the taxcredit

model of the Strong Families Act and the FAMILY Act’s traditional entitlement model. Once

the idea of economic redistribution has set root – as it does with the tax credit – it is only a

practical matter to accept the full-fledged egalitarian entitlement program.

The AAF version of paid family leave is called the Earned Income Leave Benefit (EILB). It copies

the egalitarian, redistributive profile from the FAMILY Act, making its benefits available only to

low-income citizens. Eligible persons would get 12 weeks of paid family leave with the federal

government replacing 34 cents per dollar earned, up to an earned income cap of $27,990.

In a series of blogs in early 2017, the American Enterprise Institute and the Brookings

Institution promoted the EILB as the next step in federal entitlements. On April 3, in the

Washington Examiner, Angela Rachidi, research fellow in poverty studies at the American

Enterprise Institute, advocated propagated for the EILB, explaining that it would be:

an income-tested paid parental leave program that would provide a reasonable benefit

($300-$500 per week, depending on family size and income) to low- and lower-middleincome

households. We suggest phasing it in and out in a way that targets those who are

the least likely to already have it, as well as the least likely to handle an income loss from

time away from work.

Since the EILB shares the egalitarian redistributive profile of the FAMILY Act, as well as of other

entitlement programs such as Medicaid and the Earned Income Tax Credit, it reinforces

institutionally the egalitarian profile of the American welfare state. The EILB, like the FAMILY

Act, entrenches the principle that high-income earners forfeit income at the benefit of low-income

earners.

It could be argued that a conservative government can indeed provide entitlements. It is well

known, for example, that the origins of the British welfare state, as laid out in the Beveridge Report

after World War II, were conservative in nature. This argument, however, overlooks the fact that

conservative entitlement programs, as put forward in the Beveridge Report (or in Bismarck’s 19 th

century Prussia), were not redistributive in nature. They provided a passive safety net, a go-to

solution of last resort, for people whose livelihood had disappeared through for no fault of their

own, and who had nowhere else to go.

The EILB is not designed to be a Beveridgian last-resort program. Its idea is instead that people

must work in order to be entitled to benefits; those who would have to rely on last-resort programs

would already be out of work. People who work have a continuing income; by benefiting those

who have a low but continuing income, the EILB leaps out of the conservative box into the

egalitarian snake pit. Where conservatives would argue for strengthening the opportunities for

people to continue to benefit from individual responsibility and strongly protected property

rights, EILB proponents weaken free-market incentives and increase dependency on government.

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The EILB: economic redistribution and fiscal recklessness

The redistributive, egalitarian nature of the Earned Income Leave Benefit is built in to the

fabric of the program. It is also a likely source of more government debt, the only remedy for

which is that Congress, in passing the program, also commits to big tax increases, in the near

future as well as further down the road.

In addition to borrowing heavily from the FAMILY Act, the EILB mimics another redistributive

entitlement program, namely the Earned Income Tax Credit (EITC). To qualify, a person has to

work and earn an income below a certain threshold. The benefit is also phased out in a fashion

similar to the EITC.

As with the EITC, the EILB’s redistributive profile combines incentives for people to remain in

low income jobs with disincentives toward self-determination. The EITC steeply reduces its

benefits as the beneficiary's income rises, creating effective marginal income-tax effects for

eligible persons that a taxpayer otherwise would not encounter in the regular income-tax code

until earning more than ten times the EITC eligible income.

The EILB has a similar effect. Under the program’s stipulated 34-percent income replacement

rate, the EILB offers a maximum of $3,359 in benefits per year to a family with no more than

$27,990 in annual income, the highest income an eligible worker can earn. Once their income

rises above that point, they lose the benefit. Mr. Gitis explains:

Similar to the Earned Income Tax Credit (EITC), the size of the EILB that would be

available is based on the total income earned by the worker’s household. Also like the

EITC, the EILB would only be available to workers in households with incomes below a

certain threshold. This means that benefits would only go to vulnerable workers in lowincome

households.

Suppose that the main income earner in this family gets a raise that increases the family income

by ten percent. Earning $30,789, they now transition out of the range of EILB eligibility.

Initially, this seems like an improvement for the family. Even with federal income taxes

accounted for, their situation appears to be better. Federal taxes take 15 percent of the $2,799

raise, leaving the family with a net increase of $2,379. However, the loss of the EILB forces them

to start saving up for economic contingencies and for having future kids. The annual value of the

EILB is $3,359, which de facto constitutes a loss to their disposable income. Deducting first

federal income taxes, then the EILB, leaves them with a net loss of $980 per year.

In order to compensate for the loss of the EILB, this family would have to get a much larger pretax

income raise: $3,952, or 41 percent. That number does not factor in other entitlements they

stand to lose, partly or entirely, such as EITC, SNAP or Medicaid.

Due to its design, the EILB effectively defines itself as a major cost item in the federal budget. It

incentivizes perpetual dependency and disincentivizes the pursuit of financial self-sufficiency.

Based in part on its stark marginal-tax effects, the EILB also incentivizes future reforms to the

program. A summary of the EILB benefits opens the door to an explanation:

• 12 weeks of paid family leave;

• a tie between benefits and family income at a rate of 34 cents to the dollar earned; and

• a cap on eligibility at a total of $27,990 of family income.

Based on these parameters, Mr. Gitis estimates the cost of the entitlement program. He uses two

methods for the estimate, one based on official statistics over how much family leave people took

under the Family Medical Leave Act and the other based on the maximum entitlement value of

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the program. The latter method, which Mr. Gitis referred to in a memo on January 26, 2016,

would cap out the cost of the EILB at $31.6 billion per year.

The two variables that create the aforementioned marginal-tax effect are the income threshold

and the income replacement rate. With the latter currently set at 34 cents to the dollar, the EILB

falls short of most other proposed federal programs, or existing state programs. For example, the

paid family leave program in Washington, DC replaces 100 percent of a person’s first $1,000 of

monthly income; for every dollar there above the replacement rate is 50 percent.

A comparison between the EILB and the DC program conveniently demonstrates how paid

family leave program can become a major cost item in the federal budget. If replacement-rate

model from the Washington, DC program are used in the EILB, the $31.6-billion maximum cost

that Mr. Gitis foresees, suddenly turns into $112.9 billion, three and a half times more than Mr.

Gitis suggests. At an income replacement rate of 67 percent, the cost of the EILB stops at $62.7

billion.

Congress has demonstrated repeatedly with, e.g., Medicaid and Medicare, that once an

entitlement program has been created, it is willing to continue to expand that program. Therefore,

it is perfectly reasonable to expect that once a paid family leave program becomes law of the land,

its benefits and eligibility criteria will expand significantly over time.

If the EILB were signed into law, the risk of major expansions early on in the life of the program

is very high if the income replacement rates are low from the start. Arguments referring to

“decency" and "sustainable benefits" would soon drive up the average replacement rates, and

possibly expand eligibility. As a result, the program would set itself up to become not only a major

cost item in the federal budget, but also a strong contributor to the federal budget deficit.

The risk that paid leave adds to the deficit is high, especially when proponents fail to provide a

meaningful funding model for the program. Mr. Gitis falls into this category. The FAMILY Act,

whose redistributive principles the EILB have borrowed, is supposed to be funded by a flat income

tax; it is reasonable to expect that the EILB would be paid for in a similar way.

Here, though, the problem with benefits expansion quickly translates into a major source of tax

increases. If Mr. Gitis and other EILB proponents want their program to be fully financed, they

will have to envision legislative tandem between benefits and taxes. Alas, if benefits go up – as

they will almost certainly do – EILB proponents will also have to be ready to defend tax increase.

In the case above, where benefits increase from the EILB’s original levels to those offered under

the Washington, DC paid-leave program, the cost of the program will quadruple. This cost

increase does not take into account any increase in demand for the benefits from people who were

discouraged by the lower replacement rate.

If the costs of benefits quadruple, then so will the rate of the tax that pays for the program.

The lack of specificity on the funding side is a major weakness of the EILB; where the FAMILY

Act proposes a proportional payroll tax (though far too modest to fund the program), the

American Action Forum and the American Enterprise Institute have declined to provide specifics

on how to pay for the EILB. Therefore, the following numbers are hypothetical but based on the

program’s design.

A tax that can pay for the EILB at its maximum entitlement value – in other words the maximum

amount of money every eligible person can take out of the program – would make for a clearly

notable addition to existing payroll taxes. Current payroll, or OASDI, taxes deliver just over $1

trillion annually into the federal government's coffers.

If the EILB were introduced as currently designed, the federal payroll tax rate would have to

increase by approximately 0.42 percent, from 12.4 to 12.82 percent. If income replacement

increased to 67 percent and the design mimicked the Washington, DC program, Congress would

have to increase the paid-leave share of the payroll tax to at least 0.83 percentage points. This

would take the OASDI tax rate up to 13.23 percent. At replacement rates fully in line with the DC

program, the total OASDI tax rate would be approximately 13.4 percent.

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Paid leave and egalitarianism

There is one final point to be made about paid leave and economic redistribution: short of an

entirely individualized program, it is always going to be redistributive. By definition, government

would be redundant in an individualized program. In other words, it is not possible to construct

a paid-leave program where government is not redundant, without also engaging in income

redistribution. The following experiment explains this point.

Focus is on economic distribution, the prime egalitarian policy instrument. Income distribution

– one part of economic distribution – is often reported in two ways: by means of the Gini

coefficient and by means of income groups. The Gini coefficient is useful for comparisons of

income distribution at a general level, and especially for international comparisons. However, it

is not very useful for the analysis of distribution effects of specific economic policy measures.

Here, the income-group instrument is preferable.

The Census Bureau offers ample statistics over the U.S. population, divided into quintiles based

on a number of sub-categories such as family size and race. This experiment uses average-income

quintiles for 2015, the latest year available, as reported in the Census Bureau’s income table F-3:

“Mean Income Received by Each Fifth and Top 5 Percent of Families, All Races”. The table reports

the following average incomes by quintile:

First Quintile: $17,367

Second Quintile: $42,700

Third Quintile: $70,500

Fourth Quintile: $107,517

Fifth Quintile: $225,279

For this experiment, the quintiles are populated with 200 individuals each; the entire 1,000-

count hypothetical sample is a perfect representation of the U.S. population. Total income earned

by quintile is now:

First Quintile: $3,473,000

Second Quintile: $8,540,000

Third Quintile: $14,100,000

Fourth Quintile: $21,503,000

Fifth Quintile: $45,055,000

Total income earned is $92,672,600, which gives us the following shares of income, i.e., income

distribution:

First Quintile:

Second Quintile:

Third Quintile:

Fourth Quintile:

Fifth Quintile:

3.7 percent

9.2 pct

15.2 pct

23.2 pct

48.6 pct

There are two criteria for determining the redistributive profile of an entitlement program, such

as paid family leave. The first criterion compares the distribution of benefits across the quintiles

compared to the distribution of income. For this purpose, a hybrid of existing proposals is used:

it borrows the 66-percent income replacement rate from the FAMILY Act and the total benefits

cap of $1,000/week from the Washington, DC and California programs. The hybrid imports a 12-

week cap on eligible leave time from the Strong Families Act and the EILB.

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The hybrid does not impose an income cap on eligibility: unlike the EILB, this hybrid does not

cut anyone out of the paid-leave program because their income increases above a certain limit.

The point behind omitting an income eligibility cap is that such a cap makes the program

blatantly redistributive, as only low-income workers would qualify.

With income being replaced at 66 cents to the dollar, up to $1,000 per week for 12 weeks, the

maximum annual benefits a person can earn per quintile is as follows:

First Quintile: $2,645

Second Quintile: $6,504

Third Quintile: $10,738

Fourth Quintile: $12,000

Fifth Quintile: $12,000

If every eligible person in every quintile maxed out their benefits, the total cost for these 1,000

hypothetical individuals would be $8,777,272. These total benefits would distribute among the

quintiles as follows (first column); for comparison, the income shares per quintile are also

included (second column):

First Quintile: 6.0 pct 3.7 pct

Second Quintile: 14.8 pct 9.2 pct

Third Quintile: 24.5 pct 15.2 pct

Fourth Quintile: 27.3 pct 23.2 pct

Fifth Quintile: 27.3 pct 48.6 pct

Every quintile is entitled to a higher share of total benefits than their income, except the fifth

quintile. The paid family leave program is therefore redistributive according to the first criterion:

distribution of benefits compared to distribution of income.

The second criterion compares benefits distribution to the distribution of the tax burden. Under

a progressive income tax system, a disproportionate share of personal income taxes are paid by

higher-income earners. When such a tax pays for an entitlement program with capped benefits –

as is the case with the paid-leave program used in this experiment – this second criterion

concludes that the program is strongly redistributive.

No paid-leave program relies explicitly on existing federal personal income taxes for funding.

Instead, the default funding model is a small payroll tax to be added on top of existing taxes for

Social Security and Medicare. The FAMILY Act is the only proposal that comes with an explicit

funding idea: a payroll tax at a 0.2-percent rate. This experiment uses that tax.

Since the tax is proportionate and covering all personal income, the tax burden distributes

across the income quintiles with the exact same proportions as income. Therefore, the table

comparing benefits distribution to income distribution is also valid for comparison of benefits

distribution to the distribution of the tax burden.

As an illustration of the redistributive profile of paid family leave, Figure 1 reports the

differences between the benefits share and the tax-burden share for each quintile. For the first

quintile, their share of total benefits is 61 percent higher than their share of the total tax burden.

The same is true for the second and third quintiles; the fourth quintile’s benefits share is only 18

percent higher than their share of the tax burden.

Only the fifth quintile is responsible for more of the total taxes than they get of total benefits:

Figure 1

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According to this

Redistribution profile, paid family leave experiment

experiment, which again

70%

is based on the Democratsupported

FAMILY Act

61% 61% 61%

60%

proposal, four in five

50%

working Americans would

40%

have the right to a higher

30%

share of total benefits

18%

than the share of taxes

20%

they would be responsible

10%

for. By definition, this

0%

means that if every

I II III IV V eligible person maxed out

-10%

their benefits, then four in

-20%

five working Americans

-30%

would cost the paid-leave

program more than they

-40%

contribute to it.

-50%

-44% This experiment is

based on a stylized, hybrid

model of existing paid family leave proposals, and existing programs. Changes to the parameters

of the hybrid changes the numerical outcome, but not the structural conclusion, namely that paidleave

programs are necessarily redistributive. A shortened eligible-leave time period, from the

hybrid’s 12 weeks to, e.g., the 8 weeks included in the FAMILY Act, reduces the imbalance between

benefits and tax revenue, but it does not change the redistributive profile of the program.

Likewise, an increase in the benefits cap, which is set to $12,000 per year in the hybrid, will alter

the fiscal impact but not the redistributive profile.

Only a removal of the benefits cap will change the redistributive profile. That, on the other hand,

would individualize the program to a point where government presence is redundant.

Furthermore, an extension of benefits at a portion of earned income, to all income made by all

eligible persons, would massively deteriorate the fiscal imbalance of the hybrid, to a point where

it would be reduced to a purely theoretical exercise.

Because of the redistributive profile, the paid-leave program is always going to be egalitarian in

nature.

Other arguments for paid family leave

In addition to the egalitarian argument for paid family leave, which is shared across the ideological

aisle, two other arguments circulate in the literature. The American Enterprise Institute and the

American Action Forum advocate their jointly supported EILB, in part by suggesting that it has a

fiscally responsible profile compared to other proposals. This argument is not based on any

systematic estimates, or even static calculations. They provide no tangible ideas of how their

program be funded. Their only merit for selling their program with a fiscally conservative profile

is that the total cost would be lower under the EILB than other paid-leave proposals.

Lack of meaningful fiscal estimates is a problem to any policy proposal marketed under the

banner of fiscal responsibility. The term is normally used with reference to budget balancing: a

policy or a government is fiscally responsible if its current outlays are covered by current tax

revenue. More broadly, the term is also applied to government spending in general, with less

spending being more responsible than more spending. However, so long as the implication

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remains that spending is paid for by current revenue, from a practical viewpoint the EILB

proposal is a hollow shell.

In addition to lacking in funding methods and estimates, the FAMILY Act, the EILB and the

Strong Families Act are all void of benefits utilization estimates. This shortcoming adds to the

problems associated with any reference to fiscal responsibility in defense of paid leave programs.

For all intents and purposes, the fiscal-responsibility argument is irrelevant.

Another argument in favor of paid family leave is its contribution to stronger families. Senator

Fischer (R-NE) has exemplified this argument in her own advocacy for the Strong Families Act

(which in its very name alludes to this conservative argument). Generally, social regulations could

provide an ideologically consistent foundation for a conservative paid-leave argument. Separating

conservatives from libertarians, social regulations are aimed at strengthening the traditional

family as the smallest social building block. Social regulations cover topics such as abortions,

marriage and, to some degree, the labor market. A paid-leave program could fall under the third

topic: it could be argued that government should guarantee parents time away from work, without

jeopardizing employment, to bond with a newborn or adopted child, because it makes parents

stronger and families more resilient.

The question whether or not paid family leave strengthens families, or encourages single

parenthood, albeit relevant from a broader perspective of political economy, is beyond the scope

of this paper. More importantly, social regulations are not the center of the current paid-leave

debate. The American Action Forum uses another egalitarian argument in favor of paid family

leave. Suggesting that the entitlement program helps close a gender gap in the workforce, the AAF

borrows a page from Senator Gillibrand (D-NY). the FAMILY Act, says the senator, would stem

women’s disproportionately large income losses from unpaid family leave. This argument is

addressed in subsequent sections.

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S R Larson Paid Family Leave Wyoming Prosperity

The Paid Family Leave Experience

While forms of tax-funded, paid leave programs date back to at least the Bismarck era of the 19 th

century, the modern programs that are the focus of the current U.S. public debate came about

with the modern welfare state in the mid-20 th century. A good example is the Swedish paid-leave

program, with coverage for parental leave, sickness, and disability insurance, the first parts of

which were established in 1955.

Most of the research on paid family leave evaluative in nature, asking whether or not the

programs have a positive impact on the lives of children and their parents. Those questions fall

into two broad categories: health and economy. In the health category, focus is on the relation

between paid family leave and child health, while the economic category looks at how paid leave

affects employment and earnings among mothers.

Despite many attempts to establish significant results in both categories, the literature is overall

inconclusive and in some instances reports more or less trivial results.

A Canadian study of women’s workforce participation under paid leave reached conclusions of

both kinds. 2 The trivial conclusion said that when the federal Canadian program doubled the time

of paid leave, from 25 weeks to 50, women were less inclined to return to work within the new,

extended period of paid leave. It is not a significant contribution to find that when people get paid

leave from work, as opposed to unpaid leave, they will be more inclined to stay away from work

during their period of eligibility.

The same study also reported that it found no change in women’s attachment to the labor market

after 50 weeks of leave, compared to 25 weeks. In other words, the study was inconclusive on this

issue.

The workforce attachment argument is also made in a Swedish study, published in 2003 as a

doctoral thesis at the University of Stockholm. In an examination of data from 18 welfare states

over 25 years, the study found that paid family leave: 3

• benefits female workforce participation in families with two income earners, but

• is negative for female workforce participation in “traditional” families, i.e., families with

one income earner.

In other words, in families where women work before paid family leave, women continue to

work; in families where women do not work, they continue not to work even as work would give

them access to paid leave.

As with the aforementioned Canadian study, legal aspects again trivialize the finding: to qualify

for paid leave from work, a parent must first be employed.

Leaving the economic questions regarding paid leave, a somewhat more interesting finding is

that paid family leave may have positive effects on children’s well-being. One study finds that

2 Hanratty, Maria, and Eileen Trzcinski. “Who Benefits from Paid Family Leave? Impact of Expansions

in Canadian Paid Family Leave on Maternal Employment and Transfer Income.” Journal of Population

Economics, vol. 22, no. 3, 2009, pp. 693–711.

3 Ferrarini, T: Parental Leave Institutions in Eighteen Post-War Welfare States; Doctoral Thesis, The

Swedish Institute for Social Research at Stockholm University; Stockholm, Sweden 2003.

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when parents work, instead of being with their children, children are worse off than if parents

spend more time with them. 4

While it is noteworthy that children appear to fare better while spending more time with their

parents, it is also important not to rush to generalized conclusions. Unfortunately, this study

provides yet another example of where an author tries to make a chicken out of a feather. The

study reports that “researchers have documented that children are more likely to spend time

without parental supervision at younger ages if their parents are working.” This statement is by

definition trivial: when parents work instead of being with their children, their children spend

more time without parental supervision.

The difficulties that the paid-leave literature has with reporting significant results is in part

related to methodological difficulties. Economist Christopher Ruhm urges caution when drawing

conclusions, especially with reference to policy recommendations: 5

Leave policies may … increase job continuity – the ability of parents to stay in their prebirth

job – and so to help them retain use of skills or knowledge specific to their employer,

potentially enhancing productivity and resulting in better long-term earnings and career

development. … These benefits are by no means guaranteed, however. For example, long

leaves may cause human capital to depreciate, reducing productivity and wages. Extensive

leave rights may make employers less likely to employ types of workers with high

propensities to use leave or to reduce the costs of these absences by cutting training.

He also warns of the problems with identifying health benefits of paid leave:

Proponents of leave entitlements believe that these policies also enhance the health and

long-term development of children by giving parents more time to invest in their children

during the critical first years of life. Although the theoretical rationale for such benefits

seems clear … these issues are challenging to study, because potential benefits are difficult

to measure in most large-scale data sets and may not strongly manifest until many years

after birth.

His awareness of the risk of oversimplifying for being trivial does not prevent Ruhm from being

ambiguous himself. 6 On the one hand he observes:

rights to paid leave are found to raise the percentage of women employed, with a substantial

effect observed for even short durations of guaranteed work absence. In the preferred

econometric specifications, leave legislation raises the female employment-to-population

ratio by between 3 and 4 percent, with larger effects for women of childbearing age.

On the other hand, he notes that a sizable portion of this increase is a matter of statistical

definition – and that longer leave actually diminishes women’s earnings:

Around one-quarter of this change probably results from increases in the number of women

who are reclassified as “employed but absent from work” due to the availability of leave.

4 Heinrich, C: Parents’ Employment and Children’s Wellbeing; The Future of Children, Vol. 24, No. 1,

Helping Parents, Helping Children: Two-Generation Mechanisms (Spring 2014) pp. 212-146.

5 Ruhm, C: Policies to Assist Parents with Young Children; The Future of Children, Vol. 21, No. 2, Work

and Family (Fall 2011) pp. 37-68.

6 Ruhm, C: The Economic Consequences of Parental Leave Mandates: Lessons from Europe;

The Quarterly Journal of Economics, Vol. 113, No. 1 (Feb. 1998) pp. 285-317

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Brief leave entitlements have little effect on women’s earnings, but lengthier leave is

associated with substantial (2 to 3 percent) reductions in relative wages.

In other words, most of his identifiable results fold to definitional issues. The remaining

employment effects, in turn, are contrasted against losses in earnings. People may work more

thanks to paid leave, but they earn less per hour worked.

While not strictly a zero-sum game, the program has the appearance of producing such effects.

Numerous studies confirm the ambiguity of the results from research on maternal employment

and paid family leave, either in themselves, 7 or by contradicting other research. 8

Much of the research dealing with paid leave programs has yielded ambiguous results, and some

researchers explicitly warn against far-fetched conclusions. 9 At the same time, there are some

exceptions, such as Blau and Kahn (2013), who contradict conservatives and egalitarians who

suggest that paid family leave benefits women in the workforce: paid family leave may have a

negative effect on women’s ability to develop their professional careers. 10

On the one hand, a relatively lower workforce participation among women in the United States

could be explained by paid-leave programs in other OECD countries encouraging women to work.

On the other hand, women in countries with paid family leave are more inclined to work part time

and in lower-paying jobs than American women, who are more often found in management and

professional positions.

Putting the health effects of paid leave in a broader context, there is some agreement in the

literature that paid family leave preempts negative health consequences for children. One study

of 16 European countries over a 25-year period finds substantial preemption. 11

These results are corroborated for the United States and Japan in an article in the Economic

Journal. 12 Paid-leave entitlements offering long periods of leave correlate with better child health.

In her explanation of the institutional structure of paid family leave, the researcher behind the

article also distinguishes between paid leave programs protected by employment and those that

are provided by government. This would suggest that she also distinguishes between the two

forms in her statistical study. However, that is not the case. Her statistical estimates (2005, Table

7 Waldfogel, J: Policy toward Parental Leave and Child Care; The Future of Children, Vol. 11, No. 1,

Caring for Infants and Toddlers (Spring-Summer 2001), pp.98-111, and: Sundström, M and Stafford, F:

Female labour force participation, fertility and public policy in Sweden; European Journal of

Population, Vol. 8, Issue 3 (Sept., 1992) pp. 199-215

8 Jaumotte, F: Labor Force Participation of Women: Empirical Evidence on the Role of Policy and

Other Determinants in OECD Countries; OECD Economic Studies, No. 37, 2003;

and:

Winegarden, C and Bracy, P: Demographic Consequences of Maternal-Leave Programs in Industrial

Countries: Evidence from Fixed-Effects Models; Southern Economic Journal, Vol. 61, No. 4 (Apr. 1995)

pp. 1020-1035

9 Bartel et al: California’s Paid Family Leave Law: Lessons from the First Decade; U.S. Department of

Labor, June 2014. Available at: https://www.dol.gov/asp/evaluation/reports/PaidLeaveDeliverable.pdf

10 Blau, F and Kahn, L: Female Labor Supply: Why Is the U.S. Falling Behind? NBER Working Paper

18702, National Bureau of Economic Research, January 2013

11 Ruhm, C: Parental Leave and Child Health; Journal of Health Economics, Vol. 19, No. 6 (Nov 2000)

pp. 931-960.

12 Tanaka, S: Paid Leave and Child Health across OECD Countries; The Economic Journal, Vol. 155,

No. 501, Features (Feb. 2005) pp. F7-F28. Tanaka does find that paid-leave entitlements offering long

periods of leave correlate with better child health. In her explanation of the institutional structure of paid

family leave, she also distinguishes between paid leave programs protected by employment and those that

are provided by government. This would suggest that she also distinguishes between the two forms in her

statistical study. However, that is not the case. Her OLS estimates (2005, Table 3) only suggest a

correlation between the length of leave and children’s health care. There is no conclusion to be drawn from

her results in favor of a tax-paid entitlement program.

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S R Larson Paid Family Leave Wyoming Prosperity

3) only suggest a correlation between the length of leave and children’s health care. There is no

conclusion to be drawn from her results in favor of a tax-paid entitlement program.

It is important to note the policy implications – or lack thereof – from the academic literature.

When results are trivial or ambiguous, the implication is that there is no support for policy

reform. At the same time, even when results are significant and unambiguous, one must be

cautious about interpreting the results for policy purposes.

For example, a study finding that an extension of paid leave reduces infant mortality and

benefits women’s workforce participation, would seem to speak in favor of paid family leave. 13 The

authors even go as far as to suggest that “the benefits of paid maternal-leave programs would

seem to be unconditionally positive”.

However, their analysis takes the paid part of paid family leave as given; the only variable they

change is the length of the program. Therefore, all the study says is that longer leave is better than

shorter leave; their study offers no conclusions as to whether says maternity leave should be paid

or unpaid, provided by government or employers, or even be a private matter for parents. 14

Some researchers explicitly caution against over-reaching in the conclusions from paid-leave

research. A 2014 study for the U.S. Department of Labor spelled this out: 15

European countries with longer leave policies have lower post-neonatal and age one-tofive

mortality rates. However, causal inference from such cross-country comparisons is

complicated as other country-specific factors may be correlated with both leave provision

and infant health. For example, Scandinavian countries, which have some of the longest

family leaves, also have a variety of other social safety net supports such as low-cost public

childcare.

Rather than supporting a paid-family leave reform, the current state of the academic research

on the subject points in two directions, one suggesting more research and one strongly cautioning

against policy reforms without the firm foundation of research in its support.

A review of international data

As indicated by the academic literature, the European experience with paid family leave programs

provides a meaningful context to the debate over a U.S. program. Europe was the cradle of this

type of entitlement, early on making it an integrated component of the welfare state. Paid-leave

programs in non-European countries are comparatively new, making it difficult to extract

predictive data from them. Australia is an example, where the federal paid family leave program

was enacted in 2011. With a history of barely five years, it is not meaningful to try to draw any

conclusions from how it has performed thus far.

The roots of Canada’s maternity leave stretch back to 1971, though subsequent reforms have

transformed the program into a comprehensive entitlement comparable to Scandinavian

models. 16 In 2003, the federal Canadian government doubled the number of paid-leave weeks

13 See Winegarten and Bracy (2005), footnote 26.

14 Another study, appearing to favor paid leave but taking the paid part as given:

Berger, L, Hill, J and Waldfogel, J: Maternity Leave, Early Maternal Employment and child Health

and Development in the US; The Economic Journal, Vol. 115, No. 501, Features (Feb. 2005) pp. F29-F47

15 Bartel et al: California’s Paid Family Leave Law: Lessons from the First Decade; U.S. Department of

Labor, June 2014. Available at: https://www.dol.gov/asp/evaluation/reports/PaidLeaveDeliverable.pdf

16 Schwartz, L: Parental and Maternity Leave Policies in Canada and Sweden; Industrial Relations

Centre of Queen’s University, 1988

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parents could take. According to the Wall Street Journal, this resulted in a drastic increase of

paid-leave utilization among fathers: 17

parental-leave claims by fathers in Canada soared 80% in the extended policy's first year,

while total claims surged 24% to 216,000. Overall, the average leave grew to more than 10

months, up from 6.5 months. The expanded benefit is "taking some of the stress off" dualcareer

parents, says Donna Lero, a professor at the Centre for Families, Work and Well-

Being at the University of Guelph, northwest of Toronto.

In terms of effects on labor market participation, the Canadian system appears to be void of

detectible results. In 2008, an evaluation of the Canadian paid family leave program found that,

despite an extension of paid leave form 25 to 50 weeks, and an increase in income replacement,

there was no detectible change in workforce participation among mothers. 18

A review of European paid-leave programs corroborates the conclusion that this type of

entitlement does not seem to have many traceable effects as proponents suggest.

A key argument for federally provided paid family leave is that it will eliminate, or at least

drastically reduce, income differences between men and women, resulting from women’s choice

to use family leave. In order to do so, a federal program would, in the very first place, have to

strengthen women’s employment. With the experience from Canada and California being

ambiguous on this front, at least among low-income women, it is relevant to ask to what extent

European paid-leave programs are better at strengthening maternal employment. The European

experience with these programs is longer and more comprehensive in terms of both income

replacement rates and paid leave than both the Canadian program and existing state-level

programs in the United States.

The substantive difference between a paid-leave program and today’s Family and Medical Leave

Act is the “paid” part, namely the addition of an income replacement part. If the presence of

income replacement makes a difference, then one would expect its rate to correlate positively with

maternal employment.

Figure 1 reports data from 21 OECD countries in 2015 (or latest year available) on the

replacement rate in government-run maternity leave programs, and the employment rate among

mothers. While the replacement rate varies from 90 percent (Bulgaria) to 31.1 percent (United

Kingdom), there is no trend in maternal employment:

Figure 1

17 “Family Leave Advocates Look to Canada for Generous Model”; The Wall Street Journal Sept. 16,

2003. Available at: https://www.wsj.com/articles/SB106366524226185600

18 Hanratty, Maria, and Eileen Trzcinski. “Who Benefits from Paid Family Leave? Impact of Expansions

in Canadian Paid Family Leave on Maternal Employment and Transfer Income.” Journal of Population

Economics, vol. 22, no. 3, 2009, pp. 693–711.

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S R Larson Paid Family Leave Wyoming Prosperity

95

90

85

80

75

70

65

60

55

50

45

40

35

30

25

20

15

10

5

0

Figure 2: Income replacement rate (green);

Percent maternal employment (blue; trend represented by dashed line)

Employment rate Replacement rate Linear (Employment rate)

Source: OECD Family Policy Database, tables PF 2.4 (replacement rates) and LMF 1.2 and 1.3 (empl. rate)

In other words, there is no correlation whatsoever between the replacement rate and the

employment rate among mothers. It is important to acknowledge that a simple statistical

comparison as in Figure 2 gives an incomplete view of all the variables that affect a mother’s

employment decisions; at the same time, if access to paid parental leave has any meaningful

influence on maternal employment, Figure 2 should at least exhibit some correlation.

Individual country examples reinforce this conclusion:

• Italian mothers get 80 percent of their income, more than 2.5 times as much money per

week compared to British mothers, yet employment among mothers is only 55 percent,

compared to 67 percent in the United Kingdom;

• In Sweden, maternity leave programs replace an average of 77.6 percent of the worker’s

income, while Danish mothers only receive 53.3 percent of their income, yet maternal

employment is almost identical: 83.1 percent in Sweden and 82 percent in Denmark.

The Swedish-Danish comparison is particularly striking, as these two countries have some of

the longest historic experience with paid family leave programs. It is therefore reasonable to

expect that if paid leave is relevant for mothers in their workforce participation, the big difference

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in income replacement between these two Scandinavian countries should show up in a similarly

big difference in maternal employment.

Furthermore, if income replacement in parental leave is important to women’s ability to keep

up with men on the labor market, then countries that offer 100 percent income replacement

should also exhibit similar, and high, rates of employment among mothers. Table 1 reports

maternal employment rates in such countries:

TABLE 1:

Maternal empl. rate

Slovenia 79.1

Lithuania 75.8

Austria 75.7

Portugal 75.7

Luxembourg 74.8

Netherlands 74.8

France 72.2

Israel 72.1

Croatia 69.2

Germany 69.0

Poland 67.6

Estonia 65.5

Spain 59.5

Chile 54.9

Mexico 44.8

Source: OECD Family Policy Database, tables LMF 1.2 and 1.3

Interestingly, there is a bigger variation of employment rates among mothers in countries with

full income replacement, than in countries where the income replacement varies between 31 and

90 percent.

If income replacement is of little or no consequence to maternal employment, then is it possible

that the other part of the paid-leave program – number of weeks of leave – has stronger influence?

Some of the literature cited earlier indicates that this would be the case.

Data over paid-leave length is more available than data over income replacement rates. Figure

3 reports observations of paid leave and maternal employment for 34 OECD countries, in most

cases over 18 years. Reporting the data observations by the length of benefits, Figure 3 shows the

same lack of correlation as in Figure 2, though with a much larger set of data:

Figure 2

19


1

13

25

37

49

61

73

85

97

109

121

133

145

157

169

181

193

205

217

229

241

253

265

277

289

301

313

325

337

349

361

373

385

397

409

421

433

445

457

469

481

493

505

517

529

541

S R Larson Paid Family Leave Wyoming Prosperity

Employment rate among women (grey, left); Length of all paid family leave (green, right)

85

80

75

70

65

60

55

50

45

40

35

30

25

20

15

10

5

0

180

170

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

0

Source: OECD Employment Database

As the length of benefits varies, there is no trend in maternal employment.

To further examine the possible influence of a paid leave program, Figure 3 reports data for

maternal employment and values for a Generosity Index from the same countries in 2015 (or

latest year available). 19 Once again, there is no correlation between the mother’s access to a paid

leave program and her ability to keep a job:

19 The index is constructed as follows. The length of leave permitted under all national programs in the

dataset – in this case 24 countries – are ranked by length. The longest permitted leave is given a value of

1, with the other national programs being given a value less than 1 after dividing their number of weeks

by the highest week number. For example, Estonia offers the longest leave, 146 weeks, while Sweden

offers 51.4 weeks. The Swedish “week value” is therefore 0.35. This number is then multiplied by that

country’s income replacement rate, or 0.61 in Sweden. The Swedish index value is therefore

0.35x0.61=0.215.

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Figure 3

48%

Generosity index (grey, right); Maternal employment rate (green, left)

90.0

44%

40%

36%

32%

80.0

70.0

60.0

28%

24%

20%

16%

50.0

40.0

30.0

12%

8%

4%

20.0

10.0

0%

0.0

0 5 10 15 20 25 30

Source: OECD Family Policy Database, tables PF 2.1A (Generosity Index raw data) and LMF 1.2 and 1.3

(employment rate)

Even if paid-leave programs do not help mothers retain employment, there is the possibility that

they may help them earn more relative men. If this suggestion is correct, a generous system of

paid-family leave options – maternity leave, parental leave and home-care leave – with job

security, long periods of leave and high income replacement rates should help women close the

gender wage gap even when different career choices are taken into account. Figure 4 tests this

hypothesis, comparing the aforementioned Generosity Index to the gender wage gap 20 as defined

by the OECD: 21

20 The existence of a gender wage gap is contested: https://www.cato.org/blog/gender-pay-gap-im-nother

and https://fee.org/articles/truth-and-myth-on-the-gender-pay-gap/. However, this criticism is put

aside for the sake of the argument of this paper.

21 Explains the OECD: “The gender wage gap is unadjusted and is defined as the difference between

median earnings of men and women relative to median earnings of men. Data refer to full-time

employees and to self-employed.” A word of caution is in place: the Generosity Index data is from 2015

while Gender Wage Gap data is from 2014; it was not possible to compile comparable data for a

sufficient number of OECD countries from one and the same year. This one-year discrepancy is normally

discouraging in statistical analysis, but should be of no major issue in this particular instance. The

Generosity Index reports on institutional variables in entitlement programs, designed to remain

21


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Figure 4

Gender Wage Gap (grey, percent, left); Generosity Index (green, right)

40

38

36

34

32

30

28

26

24

22

20

18

16

14

12

10

8

6

4

2

0

0.475

0.450

0.425

0.400

0.375

0.350

0.325

0.300

0.275

0.250

0.225

0.200

0.175

0.150

0.125

0.100

0.075

0.050

0.025

0.000

Sources: OECD Family Policy Database, tables PF 2.1A (Generosity Index raw data) and the OECD Gender

Wage Gap database.

Once again, there is no correlation between the generosity of paid-leave programs and the ability

of mothers to stay on the labor market.

Taken together, the academic literature and the experiences from Canada and California fail to

establish any positive effects from paid family leave on maternal employment or gender equality

in earnings. This review of European data is equally inconclusive. The absence of conclusive

evidence should be a legislative deterrent to paid-leave programs: it would be irresponsible to

create a major entitlement program the effects of which are at best indeterminate.

unchanged over sustained periods of time. Therefore, the Index should not change much over time,

making it reasonably comparable to Gender Wage Gap data from the previous year.

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Paid family leave: not for America

Even if there are no detectible advantages to paid family leave programs, an argument could be

made for a program based on fiscal considerations. The metaphorical sales pitch for the EILB

program over the FAMILY Act is that the former would be less fiscally burdensome; by

implication, once it is created it would prevent the creation of a costlier program. In fact, in his

August 15, 2016 introduction of the EILB, Ben Gitis specifically points out that the EILB is “much

less costly than the FAMILY Act”.

A similar fiscal argument seems to be built into President Trump’s paid-leave proposal. In his

introduction of the White House’s FY2018 budget on May 23, 2017, Office of Management and

Budget director Mick Mulvaney suggested that the cost of a federal paid-leave program would be

offset by reductions in the cost of the unemployment-benefit program. 22 He did, however, not

specify whether the offset would be complete or only partial.

Fiscal impact: uncertain at best

Given the federal government’s serious deficit problems, it is important to ask whether it is at

all possible to create a federal paid family leave program without aggravating the deficit problem.

This question has two parts, one immediately related to the fiscal mechanics of a paid-leave

program; the other part is related to more broadly defined goals for paid-leave programs, such as

the suggestion that they can be helpful to women in maintaining their ties to the labor market

through maternity and parental leave.

In other words: is it possible that a paid family leave program can be merited on, e.g., genderrelated

grounds even if its fiscal impact is not for the better?

The fiscal examination of an entitlement program inevitably takes place in the context of

America’s recent fiscal experience with entitlement programs. Since President Johnson declared

his War on Poverty in 1964 and created or expanded several entitlement programs, the federal

government has run budget deficits almost uninterruptedly. After a surplus in 1969, the federal

budget has only been in balance for four years (1998-2001). 23 This suggests a causal link between

ambitious entitlement policies and a persistent deficit.

President Trump’s budget does not give away many details on how his paid family leave program

would be organized. It is therefore difficult to do any qualified estimates of its budgetary impact.

The program-specific numbers in the budget are:

• Provision of benefits; Table S-6, p. 35;

• Cost-reduction estimates in the current unemployment program; these estimates result

from the provision of “re-employment services” related to eligibility assessments; Table

S-6, p. 35;

• An estimate of future receipts, ostensibly from a dedicated payroll tax; Table S-6, p. 39;

• Contributions to the budget deficit; Table S-2, p. 26.

22 Please see: https://www.whitehouse.gov/featured-videos/video/2017/05/23/briefing-officemanagement-and-budget-director-mick-mulvaney

23 Office of Management and Budget, Historic Table 1.1: Summary of Receipts, Outlays, and Surpluses or

Deficits. Available at http://omb.whitehouse.gov

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The last item suggests a persistent deficit over the budget’s ten-year outlook. The annual deficit

forecast is $1-2 billion, which is insignificant compared to annual deficits of approximately $600

billion. However, compared to the expected benefits, averaging $1.85 billion per year, the

addition to deficit is noteworthy. In particular, it raises the question what would happen if the

paid-leave program, once created, was expanded by Congress.

This question is not strictly hypothetical. The numbers provided by the President’s budget

suggest that there is room for program expansion. According to the budget (p. 20), the proposed

program delivers on Trump’s campaign promise

with a fully paid-for proposal to provide six weeks of maid family leave to new mothers

and fathers, including adoptive parents, so all families can afford to take time to recover

from childbirth and bond with a new child without worrying about paying their bills.

If this paragraph is taken literally, the program is supposed to be open to parents of all newborn

and adopted children. This clearly implies significant expansion of the program in the future. The

budget suggests an average benefits cost of $1.85 billion per year. When divided among four

million children – the average annual number of live births in the United States – the average

paid-leave benefit a parent can collect will be $439, or $73 per week over the six-week eligibility

period.

According to the Bureau of Labor Statistics, in 2016 private-sector employees earned, on

average, $881.55 per week; under the assumptions above, the president’s program would replace

8.3 percent of average private-sector income.

It is unreasonable to expect that anyone would use a paid-leave program at such a low

replacement rate. To increase income replacement without increasing total benefits costs as

stipulated in the budget, the paid-leave program would have to come with significant access

restrictions. To replace 40 percent of average private-sector earnings, the program could only be

open to parents of 875,000 newborns (not counting adoptions); at a replacement rate of 60

percent, access would be restricted to the parents of 583,000 newborns.

Since there are no eligibility restrictions to the program, other than parents welcoming a new

child to their family, the very small size of the program seems to indicate significant expansion

over time. Therefore, the fact that the President’s budget predicts a permanent deficit in the

program already at this small size, is a matter of major concern for the future.

Concerns over the fiscal price of Trump’s paid-leave program reinforced by recent budget

forecasts. The Congressional Budget Office, e.g., predicts yet another decade of unending, even

increasing deficits. 24 So does the president’s budget for FY2018.

Of even more fiscal concern is the fact that Europe’s welfare states, which include longestablished

paid family leave programs, have suffered from persistent deficit problems and

unending economic stagnation for at least the past 25-30 years. 25 In fact, the deficit problems in

Europe are steadily getting worse. 26

While it is an open question exactly how deeply responsible the welfare state is for these

problems, the very fact that both the United States and Europe suffer from serious deficit

problems is reason enough to carefully examine the fiscal impact of a paid-leave program in the

United States.

24 See: https://www.cbo.gov/publication/52370

25 Larson, S: Industrial Poverty: Yesterday Sweden, Today Europe, Tomorrow America; Gower

Publishing, Aldershot, UK 2014.

26 Mitchell, D: Europe Is Facing a Fiscal Meltdown; Foundation for Economic Education, Sept. 19,

2016. Available at: https://fee.org/articles/europe-is-facing-a-fiscal-meltdown/

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S R Larson Paid Family Leave Wyoming Prosperity

Fiscal scrutiny is even more important given the fact that a paid-family leave program rarely

has its major fiscal impact upfront. It lies in the nature of the program that it takes time for

families to adjust to its availability. Because of their longer life, paid-leave programs in Europe

tend to have a much higher utilization rate than in U.S. states. According to the Organization for

Economic Cooperation and Development (OECD), more than half of all employed mothers in

Europe use maternity or parental leave. In eight of 23 countries surveyed, more than three

quarters of all mothers used maternity or parental leave. 27

It is evident from European data that the generosity of paid-leave programs correlates with

program utilization. Figure 1 compares the generosity of a combination of European paid family

leave programs with the rate at which mothers utilize the programs:

Figure 5

100

90

80

70

60

50

40

30

20

10

0

Paid Family Leave Generosity (grey, right);

Percent Utilization by Mothers (green, left)

0.475

0.450

0.425

0.400

0.375

0.350

0.325

0.300

0.275

0.250

0.225

0.200

0.175

0.150

0.125

0.100

0.075

0.050

0.025

0.000

Source: OECD Family Database. The choice of countries reported in this figure is limited by the

availability of data. In Family Database file PF2.2, the OECD only reports data for European countries.

Furthermore, data forming the Generosity Index is not available for all those countries. Figure 1 reports

data for all countries for which data for both variables is available.

In other words, we can expect that a federal paid family leave program would grow over time,

both in eligibility and in utilization, and that its costs would rise accordingly.

The Earned Income Leave Benefit (EILB) gives an idea the fiscal price for an expanded paidleave

program. While different from the president’s program in a couple of key areas, such as

27 OECD Social Database, Data set PF2.2. Available at: http://www.oecd.org/els/family/PF2-2-Usechildbirth-leave.pdf

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S R Larson Paid Family Leave Wyoming Prosperity

length and how entitlements are established, it is a reasonable proxy for estimating the actual

cost of the program.

Such an estimate would have to be independent of EILB proponents, who have not done a good

job evaluating either expected utilization or its actual cost. In his August 15, 2016 paper, Ben

Gitis is strikingly inexact in his attempts at nailing down any cost figure for the program. Instead

of reasoning his way to an expected utilization rate using available data, he provides an interval

between a lowest estimate and a utilization rate of 100 percent.

The lowest utilization and cost estimates are based on the utilization of unpaid leave under the

existing Family Medical Leave Act (FMLA) which eligible parents utilize to about five percent of

what they are eligible for.

Mr. Gitis admits that this is an unrealistically low estimate, agreeing with at least one academic

study, according to which utilization of maternity leave doubles when it includes income

replacement. 28 However, he offers no estimate between the bottom number and his highest

estimate, namely 100 percent. As a direct result, his cost estimate for implementing the EILB ends

up being an interval of considerable proportions: the highest cost estimate, $17.9 billion, is 1,193

percent higher than his lowest, which comes in at $1.5 billion. 29

With an inexact fiscal estimate of this magnitude, EILB could turn into a budgetary nightmare

for Congress. It is highly realistic that the eligibility criteria in the EILB will be expanded once the

program becomes the law of the land. It is not necessary to look at European precedent – the

California paid leave program is a case in point. In the first ten years of the program’s existence,

its costs expanded by a total of 87.5 percent – all of this under the same eligibility structure as

when the program was created. However, just in time for the program’s ten-year anniversary in

2014, Governor Brown signed into law SB770, a bill proposing a major expansion of eligibility.

To illustrate the fiscal dangers of eligibility expansion, consider the cost of the EILB if:

• The EILB eligibility requirements remain the same, but the income cap is removed; the

program would now apply to 117.2 million private-sector employees nationwide;

• These workers earn an average of $1,024 per week;

• Being eligible for 34 cents to the dollar for 12 weeks, the maximum value of their claims

would be $489.6 billion per year.

Yet with the aforementioned fiscal interval, Congress could just as well be led to believe that it

would only cost 40.8 billion.

An EILB that is expanded to cover the entire working population would be in sync with

traditional Scandinavian paid-leave programs. Therefore, it is reasonable to assume that EILB

utilization would mimic paid-leave utilization in Europe. At a utilization rate of 35 percent – seven

times higher than the lower estimate in Mr. Gitis’s EILB proposal – the annual cost would exceed

$171 billion.

If the program offered benefits at the same generosity levels as European programs, attracting

a utilization rate of 80 percent (again based on OECD utilization data), the cost of the program

would exceed $391 billion per year.

None of these scenarios are accounted for in any of the available writings in favor of the EILB.

This is regrettable: from a fiscal viewpoint, it is fair to say that EILB proponents are playing with

fiscal fire.

28 Rossin‐Slater, Ruhm and Waldfogel: The Effects of California's Paid Family Leave Program on

Mothers’ Leave, Journal of Policy Analysis and Management, (2013), Vol. 32, Issue 2, pp. 224-245

29 If this inexact estimate were applied to the calculation of fuel consumption for a flight from

New York to California, the plane’s fuel would carry it to anywhere from Pittsburgh to Los

Angeles.

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S R Larson Paid Family Leave Wyoming Prosperity

The California experience

If it is difficult to draw conclusions in favor of tax-paid family leave from experiences in

countries that have decades of experience with such programs, it is practically impossible to do so

based on U.S. experiences. The leading program, enacted in 2002 in California, is nowhere near

the utilization rate in European programs, and therefore cannot have the impact on people’s lives

that European programs have. For this reason, it is even more difficult to recommend a federal

paid-leave program based on the California experience.

The utilization rate of the California Paid Family Leave program is approximately 30 percent.

Part of the reason for this is that, according to a U.S. Department of Labor report, that knowledge

of the program is limited. Six years after its enactment, less than half of eligible Californians even

knew that it existed. 30 To some degree, these problems appear to persist today: Winston et al

(2017) report of complaints from low-income mothers that it is difficult to get accurate

information about, and access to, the paid-leave program.

Approximately 87 percent of program utilization was related to the birth of a newborn child,

with the rest being used to care for a sick, eligible relative. 31

Limited utilization contributes to holding costs down, as does the income-replacement cap: as

of 2013, eligible parents could collect a maximum of $1,067 per week in paid-leave benefits; in

2017 the maximum weekly benefit is $1,173. 32 In the 2012-2013 fiscal year, the latest year for

which comprehensive, program-specific fiscal data is available, the total cost of the program was

just above $550 million. 33 This is a minuscule expense compared to the $211 billion that the

California state government spend that same fiscal year, 34 though it is likely that the cost will

continue to rise as more Californians become aware of the program. Over the first decade of the

program’s existence, its costs to taxpayers increased by a total of 87.5-percent. 35

As with the general, academic literature, California-specific research is unable to find any

definitive benefits of the Paid Family Leave program, other than obvious observations, such as:

Paid leave attracts more utilization than unpaid leave (Baum and Ruhm 2014),

demonstrating the difference between an entitlement respectively without and with

monetary incentives;

• Long term, mothers are somewhat more likely to return to the same job they had before

their child was born (Baum and Ruhm 2014; Winston et al 2017), likely the result of the

fact that employers do not want to be sued for laying off a woman on governmentgranted

leave; and

• Mothers on paid leave breastfed their infants more than mothers not on paid leave;

(Appelbaum and Milkman 2011).

Beyond the expectable, one study actually found that women were more likely to be unemployed

as a result of the California Paid Family Leave program. Das and Polachek (2014) report that while

the paid-leave program somewhat increased women’s participation in the labor market, it also

had a statistically significant effect in the other direction:

30 See: https://www.dol.gov/wb/resources/california_paid_family_leave_law.pdf

31 See: https://www.dol.gov/asp/evaluation/reports/PaidLeaveDeliverable.pdf

32 See: http://www.edd.ca.gov/Disability/Calculating_DI_Benefit_Payment_Amounts.htm/

33 See: http://www.edd.ca.gov/disability/pdf/Paid_Family_Leave_10_Year_Anniversary_Report.pdf

34 National Association of State Budget Officers, State Expenditure Report 2014-2016.

35 Bartel et al: California’s Paid Family Leave Law: Lessons from the First Decade; U.S. Department of

Labor, June 2014. Available at: https://www.dol.gov/asp/evaluation/reports/PaidLeaveDeliverable.pdf

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S R Larson Paid Family Leave Wyoming Prosperity

Among young women, relative to other states, California’s unemployment rate and

unemployment duration increased after the law, two unintended effects. Re-estimation

using two placebo methods verifies these findings.

According to the same study, there is a considerable gender discrepancy between low-income

and high-income families. In the former, it is much more likely that the mother will use paid leave

than the father; high-income parents are considerably more likely to divide the paid leave between

them. Therefore, the observed increased unemployment among young women is probably

associated with increased unemployment among low-income mothers.

There is support for this conclusion from proponents of paid-leave programs. Writers for the

American Enterprise Institute, one of the institutions that has published favorably about the

Earned Income Leave Benefit, have, on at least two occasions, noted that cash benefits – paid

family leave belongs in this category – can actually have directly negative effects on women’s

participation in the labor market. 36 In one of the pieces, Angela Rachidi herself quotes an

academic study on the effects of cash-based benefits, leading her to conclude that “cash transfers

without requiring work will lead to reduced employment and other possible negative outcomes”. 37

This is notable given Rachidi’s otherwise strong support for the Earned Income Leave Benefit.

But could paid family leave be worth the cost?

Even if the EILB would end up being a major budget item for Congress, could it be worth the

while? The answer could be conditionally positive if it was possible to make the case that the EILB

will significantly improve women’s ties to the labor market.

The gender argument is not just made by think tanks and in political arguments. It has been

presented in academic literature as well. In a 2012 research report for the Center for Women and

Work at Rutgers University, Linda Houser of Widener University and Thomas Vartanian of Bryn

Mawr College concluded: 38

Women who report taking paid leave are more likely to be working 9 to 12 months after a

child’s birth than are those who report taking no leave at all … Paid family leave increases

wages for women with children. Women who report leaves of 30 or more days are 54%

more likely to report wage increases in the year following the child’s birth than are women

who take no leave at all. Women who return to work after a paid leave have a 39% lower

likelihood of receiving public assistance and a 40% lower likelihood of food stamp receipt

in the year following the child’s birth, when compared to those who return to work and

take no leave at all.

There is nothing wrong per se in the Houser-Vartanian analysis. Given its premises, it meets the

criteria of good academic research. The problem is instead one of applying their results to an

analysis of the future of a federal paid-leave program.

Panel data studies, such as theirs, are useful for the study of how human behavior is affected by

a specific set of social and economic institutions and habits. Examples are the long-term effect of

educational systems on labor-market success, or the effect of different welfare-policy regimes on

36 See: https://www.aei.org/publication/what-do-we-know-about-the-job-impacts-of-family-leave/

37 Rachidi, A: More evidence income transfers decrease work, without long-term benefits for children;

American Enterprise Institute, December 19, 2016. Available at:

http://www.aei.org/publication/income-cash-transfers-decrease-work-without-benefits-for-children/

38 See: http://www.nationalpartnership.org/research-library/work-family/other/pay-matters.pdf

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S R Larson Paid Family Leave Wyoming Prosperity

workforce participation. However, they are of limited use in studying the future effects of

currently non-existing entitlement programs. Such programs profoundly change the conditions

under which families plan their private finances and their workforce participation. The only

straightforward comparison of Houser-Vartanian to another set of data would be if a similar

panel-data study had been performed in a country with a full-fledged paid family leave program.

Only then would it be possible to draw conclusions on the future of a U.S. paid-leave program

based on the results that Houser and Vartanian report.

Since Houser and Vartanian do not compare their results to any study based on the same

methodology, in a paid-leave country, it is not reasonable to draw conclusions from their study as

to the potential effects of a federal paid family leave program.

In examining the potential effects of a future federal paid-leave program, it should in theory be

sufficient to examine existing state level programs in California, New Jersey, Rhode Island and

Washington state. However, with the exception of California, those programs are so new that they

have not yet had much of an effect on their states’ economies. Washington State passed its paid

leave insurance in 2007, New Jersey enacted its similarly named law in 2009 and in 2013 then-

Rhode Island Governor Chafee signed the Temporary Caregiver Insurance Program into law. 39

Data relevant to the study of long-term economic effects of paid-leave programs usually trails

the calendar, sometimes by a whole year. This is common in economic statistics in general.

However, it also means that the window for studying the effects of these programs for the

purposes of this paper is very restricted. Therefore, with the exception of California, only

international data can meaningfully inform a discussion about the potential effects of a federal

paid-leave program.

Whereto from here?

There are U.S. entitlement programs that serve as warnings of future cost containment, or lack

thereof. Perhaps the best example is Social Security. It was introduced in 1935 as a supplement to

private retirement plans, providing relief for poor and low-income individuals in the spirit of

conservative paternalism (much in the same fashion as the Earned Income Leave Benefit would).

However, over the years the program has become a comprehensive, mainstream entitlement

program, de facto serving as the nation's retirement security backbone. In 2013, 64 percent of all

eligible Americans received at least half of their income from Social Security. 40 It is not

inconceivable that paid family leave program, initially focused on the lowest-earning segments of

the population, would over time undergo a similar metamorphosis.

Another example is the Food Stamp program, which was also created strictly for poverty relief.

In 1964, as part of the War on Poverty, the program underwent comprehensive reforms and has

since continued to expand, Today, under its new acronym SNAP, it has a broader reach than just

poverty relief: during the Great Recession, 2008-2013,SNAP enrollment increased three times

faster than the poverty population.

SCHIP is a third example. Introduced by then-U.S. Senator Ted Kennedy (D-MA) based on a

poverty-relief health insurance program in Massachusetts, SCHIP was initially intended to serve

only children in poor families. 41 Yet already in 2002, five years into its life, the program enrolled

24 percent of all kids younger than 18. The poverty rate among this demographic was 16

39 See: https://www.dol.gov/wb/resources/paid_parental_leave_in_the_united_states.pdf

40 See: https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2015/fast_facts15.pdf

41 See: http://americasagenda-kidshealth.org/history.html

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S R Larson Paid Family Leave Wyoming Prosperity

percent. 42 In 2012, right at the end of the Great Recession, the poverty rate among children had

risen to 21 percent, but SCHIP enrollment had increased to 35 percent.

Despite the lack of evidence supporting a federal, tax-paid family leave program, and despite

the historic inability of Congress to contain poverty-oriented entitlement programs, it is

reasonable that Congress heed the call for some reform to alleviate the cost of parental leave.

However, rather than creating an entitlement program, a more reasonable path forward would be

a private, general income security account. A better option would be to allow working adults to

set aside a portion of their income, before tax, in an account designated for income security

purposes. This would allow individuals to build the same financial security for sick leave, parental

leave and other occasions of necessary leave from work, as tax-paid leave program proponents

want to achieve.

A tax-free income security account would come with deferred taxes, withdrawn upon

withdrawal of money from the account. Since deposits into the account would be proportionate

to earnings, the financial security thus obtained would be similar for both low- and high-income

earners.

This model would have two distinct advantages over an entitlement program. First, it would be

individual, tying financial security to earnings, thus maintaining the individual’s personal

responsibility for his or her own financial future. Secondly, the benefits – the money available

when needed – is safe from changes in government policy. European programs have been subject

to changes in income replacement rates at times when government is under fiscal pressure, thus

weakening the reliability of the program.

42 Census Bureau, Poverty Data Tables, available at: https://www.census.gov/topics/incomepoverty/poverty/data/tables.html

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S R Larson Paid Family Leave Wyoming Prosperity

Conclusion

Given the growing support for paid leave programs at the federal level, it is safe to assume that

the issue is only going to continue to rise on the national political agenda. With emerging

bipartisan support and with President Trump’s expressed interest in the issue, it is not beyond

the realm of the possible that Congress will seriously consider a paid-leave bill before the next

election. In the meantime, the public debate appears to be moving the issue in only one direction,

namely toward the enactment of such a program.

This paper challenges the suggestions that there are positive gains to be earned from a federal

paid family leave programs. Beyond trivial results, such as the fact that a mother spends more

time with her infant if she is not at work, the existing body of research cannot firmly conclude that

a paid-leave program would have any discernible effects on women’s pay or their workforce

participation.

Lack of evidence in favor of an argument does not mean that the opposite argument is

necessarily true. In other words, there is no obvious evidence that paid family leave programs are

harmful (except for one study suggesting increased unemployment among low-income mothers

in California). However, with proponents making the case that Congress should create a federal

paid family leave program, it is not reasonable to settle with the lack of evidence in either

direction. The fact that this type of entitlement program does not have any clearly identifiable

positive effects is a sufficient reason to recommend against it.

When the paid-leave issue is left to the private sector, it encourages personal responsibility.

Individuals can choose a career and seek employment where they can enjoy the benefits they need.

Furthermore, if paid leave is good for both employees and employers, it is reasonable to expect

that employers offering paid leave will, over time, be more successful and more profitable.

If Congress still leans toward involvement, an approach based on tax credits and incomesecurity

accounts with deferred taxes is preferable to a traditional entitlement program. It serves

as an encouragement without the red-tape nature of a mandate to provide paid leave, or the costs

of a traditional entitlement program.

»»»----------«««

Published by Wyoming Prosperity, an economic policy project courtesy of

Hill City Skunkworks, LLC

PO Box 1382

Cheyenne, WY

hillcityskunkworks@gmail.com

thewyomingprosperityproject.com

Cheyenne, WY, July 2017

All rights reserved. This paper may not be reproduced, copied or otherwise duplicated or republished without prior

approval from Hill City Skunkworks, LLC. Brief quotes, with proper reference to the original source, are permitted.

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