Paid Parental Leave

The Economics of Paid Parental Leave

Innovative employee perks are becoming more and more mainstream as small businesses and big named companies alike are adapting their benefits packages to lure (and keep) top talent. Paid parental leave is often one of the most important benefits that a company can offer. Some companies’ policies are very strict, while others allow extra time for both parents to enjoy time at home with their newborn. Some States, such as California, have programs for families to take extra time off to adjust to the new challenges of parenthood.


Family Leave in the Workplace

Family leave is a practice that’s been around for many years. Companies can reinvent their own benefits packages to suit their company culture, however, is family leave a good thing for the economy? What are some of the drawbacks to family leave time? In this article we will explore the pros and cons of parental leave to better understand the argument from both sides and demonstrate what it means to a small business owner in today’s competitive employee recruitment market.

In January of 2015, the White House Summit on Working Families announced additional steps that the Administration is taking to help working families. Some of the initiatives that the current Administration is working on include:

  • Chance for workers to earn up to seven days per year of sick time;
  • Expanding efforts to provide paid parental leave – a 2.2 billion dollar budget proposal to help states cover initial costs
  • Bring the Federal Government’s paid leave policies closer in line with industry-leading companies to ensure access to 6 weeks paid sick leave when a new child arrives. This initiative would allow parents advanced sick leave.


Upside of Paid Family Leave

Proponents of these changes argue that this type of leave time is good for the economy. They outline that paid leave is “nearly universal across the developing world, and many countries have expanded access to paid leave over the past 30 years”. Many studies over these years have shown that both parents and children benefit from the leave, which can improve children’s earnings into adulthood, infant health, and cognitive development.

If children of families who are allowed paid leave time, they are developing better, staying healthier, and becoming successful adults overall, all of these would help to promote and boost the economy health. In 2007, a study was done to track the progress of San Fransisco employment, the first city in the country to implement paid sick leave law. Reports showed that total employment increased 3.5%, while neighboring cities without the law fell 3.4% during the same time period. Overall, productivity soared, the number of businesses in the area increased, employee turnover decreased, and less money was spent on health costs for the family because they’re able to boost their infant’s (and family) overall well-being and health.

The study also suggests that paid leave promotes a healthier work environment. Productivity rises because parents are more well-adjusted when they return to work. They have given themselves the proper care that they need to adjust to the demands of parenthood. A study of over 700 firms found that work-life balance policies are key to high productivity. Not only directly after having a child, but if paid sick leave is increased, this would allow individuals who are ill to rest up at home and not infect others at work. Essentially, more sick leave time, and more family leave time means that employees are able to stay home, rest, recover from illness and in turn, be productive employees while in the office.


The Other Side of the Fence

While all of the benefits outlined above seem great for the economy, some say that the burden on businesses is too high. Opponents to the paid sick leave mandates say that due to the expensive costs, the government should not implement more laws that limit how business owners can operate their enterprises. Some say that these mandates have discouraged businesses coming to certain cities such as Philadelphia and according to Michael Nutter, the city’s mayor “[The paid sick leave bill] would put thousands of jobs at risk.”

Opponents back the claim, “when the cost of hiring of a worker rises, demand for that worker falls,” which is essentially what happened in 1990 when the Americans With Disabilities Act was enacted. The reverse effect happened for disabled workers, employment decreased to 49% compared with 60% before the law. This cause and effect was credited to the simple fact that employers, when faced with the cost of accommodation and the threat of litigation, chose the rational option: cut back on hiring the disabled. Many believe that this may have the same effect on women in the workplace.

Another argument is that longer leave time does not increase the amount of women that return to the work force for retention; but in reality, it correlates with women leaving the work force permanently. Evidence of this in Germany, which had a generous paid family leave law, shows that in 2007, when their paid parental leave was cut in half, a 14 percent surge of women returned to work. Many other studies suggest that parental leave beyond 20 weeks, actually reduces the incentive for new mothers to come back to work at all.

Opponents of paid family and sick leave legislation suggest programs such as Earned Income Tax Credit and getting rid of the “marriage penalty” which has married women taxed more heavily than single women in many other countries. By removing these penalties and moving to a “neutral” tax system, it would improve incentive to increase female participation in the labor force. If after-tax wages increase, more women will be willing to work and businesses wouldn’t pay such a high price due to increased costs the mandates demand.


What’s Your Take?

Many workers in the United States do not have access to any paid leave; however, many bills at both the state and city level are imposing laws to make this type of leave mandatory. California, New Jersey, and Rhode Island all have state mandated laws covered in their Temporary Disability Insurance Programs that help to provide leave time. As of May 2015, Massachusetts will join the ranks with their initiative making it mandatory for companies with 11 employees or higher to offer paid leave. Once this happens, it’s estimated that approximately 90 percent of the Massachusetts work force will have access to paid parental leave. Other cities such as Oakland, District of Columbia, Seattle, Portland, and Newark have enacted statutes providing covered employees with opportunity to accrue sick leave. Another 20 states and cities are actively campaigning for mandatory paid sick leave. On the opposition, 10 states have laws that prohibit cities and counties from passing their own paid sick leave legislation.

Overall, the positive impact that paid sick and family leave can be most felt on the economy as a whole rather than any single business. If the goal is to help families, then the focus should be on implementing policies that increase flexibility in the work place or alternative work arrangements. The same type of mandate may not fit each individual family or each business. The best judge for what is right for a family is only determined by them, but with fair mandates in place, both businesses and families can benefit.

Small businesses will take a hit the most from pending legislations, but as of right now, the proof is in the pudding. Paid family and sick leave has a general positive impact on the economy and promotes a healthier work force. Have we found the right means in how to implement what is best for businesses and families with the mandates in place? It seems the answer is “not yet”; but at the very least, it seems that more businesses, cities, and states are recognizing the potential benefits for their employees and providing benefits for families is more important now than ever before.

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