December 13 2013

Proposed Paid Leave Program Limits Freedom To Negotiate

Doublethink Magazine

Hadley Heath

Sen. Kirsten Gillibrand, D-N.Y., and Rep. Rosa DeLauro, D-Conn., have introduced the Family and Medical Insurance Leave (FAMILY) Act, legislation that would create a national paid family leave program within the Social Security Administration. The intention is to help Americans attain a better work-life balance in the midst of childbearing and other family obligations.

But the FAMILY Act is not good for women, men, or their families. A one-size-fits-all-program will make workplaces less flexible, and will distort employment decisions with perverse incentives. The goal of the Act is laudable, but the outcome will be harmful to our economy and our families.

The program is intended to “pay for itself” through a new tax. Two-tenths of one percent of each worker’s wages would be collected into a fund and doled out in wage replacements (for up to 12 weeks per year) when workers face a serious health condition, including pregnancy and childbirth.

These new taxes (although introduced at the very low rate of 0.2 percent) are not inconsequential. Any money taken out of the private sector is bad for the economy, and workers will see less take-home pay… even workers who never plan on taking advantage of the paid leave.

It’s not fair for a childless minimum-wage worker to fund the maternity leave of higher earners, even in part. The wage replacement is two-thirds of your normal pay, meaning higher-earners will get bigger benefits. Some low-income women may not even take advantage of the program, since cutting their pay by one-third would make it hard to subsist.

Every worker pays in, and then some collect when the time comes. Sound familiar?  It sounds like Social Security, which was also sold as financially sustainable when it debuted. Today, Social Security faces $9.6 trillion in unfunded liabilities over the next 75 years.

What will happen to the FAMILY Act if the cost of the program outweighs the revenues?  Will it become another untouchable entitlement program?  Will it become politically impossible to reduce benefits or raise tax rates? Will it add to the national debt?  Chances are… yes, yes, yes, and yes.

National budget aside, the (purported) goal of this bill is to reduce financial stress on family budgets. Regardless of political feelings, we can all appreciate this tension between the need for a steady paycheck and the desire to spend more time caring for our families and ourselves.

As Frederick Bastiat wrote in The Law, “Every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.” Importantly, opposition to the FAMILY Act does not equal opposition to paid maternity leave.

Women in the United States enjoy some of the greatest workplace freedom in the world, and most U.S. workers can already access some form of paid time off. According to the Bureau of Labor Statistics, 84 percent of U.S. workers received vacation, holiday or personal leave in 2012.  Sixty-one percent were covered by sick leave plans, and employers are increasingly providing more access to sick, personal, and family leave.

Paid time off comes with a cost to employers, but they offer it anyway. Frankly, women are such a valuable part of the modern U.S. workforce, employers want to attract and retain effective female workers by offering competitive benefits.

If government steps in to pay workers (at a two-thirds rate), employers would have less incentive to voluntarily offer (better) pay during personal leave. And regardless of who pays, employers are likely to respond to a drop in productivity by reducing overall compensation.

Supporters of the FAMILY Act will point out that the United States is exceptional: Every other industrialized nation in the world has some kind of mandated paid maternity leave. But rather than lament that we are uniquely backward, we should celebrate that we are uniquely free to negotiate the terms of our own employment without this kind of government intrusion.  Now that’s empowerment.

 

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