Category: Coronavirus Recession

How the coronavirus pandemic is harming family well-being for U.S. low-wage workers

Posted on by Maria Monroe

As the effects of the new coronavirus sweep through the U.S. economy, low-wage workers are hit first and hardest. Today, economist Liz Ananat at Barnard College and psychologist Anna Gassman-Pines at Duke University released new analyses drawing from daily diary surveys conducted in a typical large U.S. city between February 20 and March 24. Each day, they surveyed 690 retail, food, and hospitality workers with young children and they also conducted a one-time survey on the impact of the new coronavirus with a subsample of 405 respondents. Their results show how the public health crisis is unfolding and how policy has not yet softened its economic and psychological blow.

Their findings are presented below in 10 charts that track the experiences of these workers and their families just prior to, and immediately following, the onset of the coronavirus crisis in their city during March 2020. The study was conducted before the most recent stimulus package—which greatly expands Unemployment Insurance—was passed. But the findings imply that if policymakers do not act quickly to facilitate benefit access for low-wage workers, even these newest supports may not reach the people who need them most.

The coronavirus recession’s impact on low-wage workers in a large U.S. city in 10 charts

March was the first month in which the economic shocks from the coronavirus pandemic reverberated to the city under study. During this month, more than two-thirds of the workers surveyed found themselves working less, with more than 40 percent experiencing layoffs. (See Figure 1.)

Figure 1

As work hours dwindled, parents slept poorly. They reported feeling fretful, angry, irritable, anxious, or depressed all day long. Their children increasingly demonstrated uncooperative behavior. (See Figure 2.)

Figure 2

The experience of parents and their children is deeply intertwined. As parents’ moods suffered, they reported that their young sons and daughters demonstrated uncooperative behavior, which, for children, is a harbinger of deeper psychological distress. (See Figure 3.)

Figure 3

Decreases in work hours are accompanied by falls in income. Nearly two-thirds of respondents reported that their income fell following the onset of the coronavirus crisis. One-third reported severe income declines. These workers’ incomes were now less than half of what they had been in normal times. (See Figure 4.)

Figure 4

Policymakers anticipated this economic hardship, and they acted. They made emergency childcare available for people in essential occupations, Unemployment Insurance available to people who were laid off or experienced reductions in hours, provided free meal pick-up for all minor children (many of whom lost access to free or reduced-price meals in schools), and distance learning for school-aged children whose classrooms were shuttered. All low-wage workers with young children were eligible for at least some of these supports. (See Figure 4.)

Figure 5

Yet, despite the initial action taken by policymakers, few families accessed these supports. Only 3 percent of the respondents who continued to work in jobs deemed “essential” received emergency childcare. And only 4 percent of those who were laid-off received unemployment benefits. While all sample members were eligible to pick up free grab-and-go meals at schools, just 1 in 10 received them, and only half of respondents with school-aged children were engaged in distance learning. (See Figure 6.)

Figure 6

Indeed, more than half of these low-wage workers did not receive any of the services for which their families were eligible. (See Figure 7.)

Figure 7

Though the public safety net did not reach low-wage workers and their families in these first weeks of the crisis, those workers who received compensation from their employers for their reduced hours experienced less income volatility than their counterparts who had to rely on the public safety net alone. (See Figure 8.)

Figure 8

Taking stock of these serious financial challenges facing families, the research team asked respondents, “If the crisis continues, for how many months do you think you will be able to pay for groceries?” Of those respondents who were able to provide a guess, nearly 1 in 10 predicted running out of money for groceries during the week of the survey, and half predicted not being able to pay for groceries sometime before the end of May. (See Figure 9.)

Figure 9

Similarly, the low-wage workers who were surveyed predict that if the crisis continues, they’ll be unable to pay for housing. Nearly 1 in 5 predict running out of rent money during the survey week, and three-quarters predict running out sometime before the end of June. (See Figure 10.)

Figure 10

Conclusion

For all kinds of people across the world, the shock of the coronavirus crisis has been devastating. But low-wage workers in the United States were in a fragile place even before the crisis began: Economic inequality left them and their families ill-equipped to cope with a sudden financial or health shock well before the pandemic’s onset.

And the coronavirus crisis is harming more than the pocketbooks of low-income families; it is also affecting the psychological well-being of parents and their children. These psychological effects are likely the result of both economic hardship and anxiety about the coronavirus itself—and perhaps even a reaction to respondents or their family members contracting the virus.

Over the past several weeks, policymakers have recognized that low-income families are suffering and have stepped up to provide supports to these families, but the supports won’t be effective at ameliorating the distress of families—or stabilizing the economy—if workers don’t access them.

The importance of an expanded U.S. Unemployment Insurance system during the coronavirus recession

Posted on by Maria Monroe

On March 24, my colleagues Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley, gathered some 100 fellow economists and other experts online to discuss the actions the U.S. Congress and the president need to take now to mitigate the impact of the coronavirus lockdown on people and the economy. This occurred a few days before the enactment of emergency legislation by Congress that was signed by President Donald Trump this past Friday. As one of the presenters at the online conference, my focus was on how best to use the Unemployment Insurance system, a critical part of the solution for laid-off workers and the economy more broadly.

Following is a summary of my comments, with updates due to the swiftly changing policy landscape.

As I reminded the group, fiscal policy—the use of both spending and tax measures—is and will continue to be central to our country’s efforts to minimize the damage from the shutdown of the U.S. economy due to the coronavirus pandemic. Broadly speaking, fiscal policy plays two key roles: providing social insurance to make whole, to the extent possible, those most directly and deeply harmed by the economic downturn, and support for aggregate demand—making sure that people have money to spend to support themselves and spur economic renewal.

In the current lockdown period, the predominant role of fiscal policy is to provide social insurance to workers and fill holes in the balance sheets of employers. Aggregate demand stimulus will primarily be useful when we have eased the current supply constraints. In other words, right now, people’s ability to purchase goods and especially services is constrained by a shortage of things to purchase and opportunities to purchase them. That doesn’t mean we should not provide any support at all for aggregate demand, such as the $1,200 payments that will be going out to most individuals in the coming weeks, but we want to make sure we have in reserve even greater support for aggregate demand when we actually can expand.

My focus, then, is on social insurance. How do we make sure, when we just saw more than 3 million people apply for Unemployment Insurance in one week (nearly five times the previous weekly record when seasonally adjusted), with millions more to follow, that their paychecks don’t fall dramatically? This is important because in the United States right now, due to a number of weaknesses in the federal law and additional restrictions at the state level, only about 25 percent of people who are unemployed actually receive unemployment benefits, and for those receiving benefits, on average, less than 50 percent of their paycheck is replaced. So, these mass layoffs are a huge hit to millions of workers and their families, and we need a way to deal with that.

Moreover, how can we avoid at least some permanent layoffs by making it possible for businesses to instead use a combination of furloughs, temporary layoffs, or other measures, such as work sharing, with the knowledge that their workers will be able to replace much of their wage loss? With such alternatives, the federal government can pick up part of endangered businesses’ payroll costs, helping them to survive, while maintaining long-term links between workers and firms.

To be clear, while I am focusing on unemployment insurance, one size will not fit all. There will be other ways to help businesses, including loans and grants, to help them keep workers on their payroll.

That said, I am focused on unemployment insurance for several reasons. First is the most obvious one: The Unemployment Insurance system is up and running, and we understand how it works. Second, it’s relatively fast. It can get checks out in weeks, not months. Third, it’s highly targeted. It goes to those losing part or all of their jobs, exactly the people who are being hurt the most. Fourth, the Unemployment Insurance system allows multiple options for retaining those employer-employee connections, including temporary layoffs, partial benefits—a reduction of hours with partial unemployment benefits—and, work sharing, in which an employer, instead of laying off, say, 30 percent of workers, reduces all workers’ hours by 30 percent, and the government fills in the rest of their income with these benefits. Finally, the Unemployment Insurance system has a long history in this country, including a history of emergency expansions during economic crises.

Many of the proposals I talked about last week have been incorporated in some form into the legislation that was just signed into law, and some were not. There will be time to address more of these issues now that the first major bill is complete, but this is an important step. .Below I compare elements of my original proposal to what was signed into law last week.

There are four key aspects to my proposal.

  1. Ease eligibility requirements, so that three-fourths, not one-fourth, of the unemployed can collect unemployment benefits. To do this, I recommend getting rid of the requirement that beneficiaries continue to seek work (since virtually no work is available), weakening the previous-earnings test, and making previously ineligible groups, such as self-employed people, eligible for benefits. The CARES Act enacted last week does much of this, via two separate vehicles: the Pandemic Emergency Unemployment Compensation increases benefits for those usually eligible for Unemployment Insurance. Additionally, the Pandemic Unemployment Assistance provides benefits to those who have lost jobs but don’t qualify for Unemployment Insurance benefits, meaning those who are self-employed.
  2. Significantly increase the rate at which wages are replaced by benefits. Currently, it varies by state, going approximately from 33 percent to 55 percent. During this period, it needs to be much higher, at least 85 percent, according to my proposal. Ordinarily, that high a rate could discourage people from seeking new work. But this clearly is not a problem right now. We are paying people to stay home. When we need to get people working again, this rate can decline. Similar to my proposal, the CARES Act also increases benefits, but it does so by providing a flat boost of $600 per week to recipients. I discuss the motivations and implications further below.
  3. We need to make sure the potential benefit duration is well longer than the standard 26 weeks. We need a trigger mechanism that ensures workers are covered beyond 26 weeks while this crisis is ongoing. Consistent with this recommendation, the CARES Act increases the maximum potential benefit duration to 39 weeks for now.
  4. We want to make sure we can maintain the existing matches between workers and employers. So, as noted above, we need to encourage work sharing, temporary rather than permanent layoffs, and partial benefits. All these approaches can help maintain those connections. This includes employers providing health benefits to workers who are on furloughs, such as those working for Macy’s Inc., which announced this move earlier this week. The CARES Act provides incentives to states to adopt and use these short-term compensation measures. But more needs to be done here, especially to prevent perverse incentives for employers to lay off workers or cut hours instead of embracing worksharing practices.
  5. Finally, the federal government needs to step up and fund the additional cost. It’s a comparative advantage to pay for this nationally. Moreover, there is no alternative.

What are the benefit increases for workers under my proposed plan? This will vary with the wage-replacement rate we want to achieve and the maximum absolute weekly benefits allowed under the program. Under the Unemployment Insurance program, states have considerable discretion as to both of these levels, so these figures are based on averages, not on any particular state.

Figure 1 shows the average weekly increase per worker for three levels of maximum benefits—$750, $1,000, and $1,500—and gradually increasing replacement rates. So, as the chart shows, if the program set a wage-replacement rate of 85 percent, with a maximum weekly benefit of $1,500, the average worker would see a weekly benefit of $773. When compared to a 50 percent replacement rate and a maximum cutoff of $750, it translates to a roughly $473 increase in weekly benefit amount.

Figure 1

Here, it should be noted that the legislation enacted by Congress takes a somewhat different approach. To make the program as simple as possible, the new law will provide most beneficiaries with a flat weekly benefit increase of $600. Overall, for workers eligible for unemployment benefits, this will raise their benefits even more than my proposal, which would have raised benefits by a little less than $500. The flat increase also means a particularly high increase in benefits for low-wage earners, many of whom may see their unemployment benefits exceeding their paychecks. In contrast, higher-wage earners would fare better with an increase geared to their previous wage. But I should note that for workers not traditionally eligible for Unemployment Insurance—the self-employed—the benefit amounts provided by the Pandemic Unemployment Assistance are lower, at one-half the state average benefit plus $600.

I also made a fairly crude estimate of the potential cost of the kind of program I proposed. Figure 2 provides one example. It shows the cost if the proposal resulted in 75 percent of unemployed workers, rather than the current 25 percent, receiving benefits, with the maximum weekly benefit set at $1,500 and the wage-replacement rate set at 75 percent.

Figure 2

As Figure 2 shows, at an unemployment rate of 20 percent (an entirely realistic figure, unfortunately), the approximate cost over six months would be $366 billion. The estimated cost of the Unemployment Insurance measures passed by Congress is roughly $260 billion, a difference that could be explained by fewer formerly ineligible people being brought into the system, among other differences and assumptions. Interestingly, this is about the cost the Unemployment Insurance component of the CARES Act was estimated to be by numerous analysts, including the Joint Committee on Taxation.

To summarize, Unemployment Insurance is a useful, fast, and effective way of providing social insurance to a sizable set of workers. At the same time, this is only part of the solution, especially for those in the upper half of the wage distribution. Providing additional mechanisms to keep workers on payrolls is important, but this gives an immediate boost to exactly those who need it, and it allows plenty of room to adjust the program in subsequent legislation, as well as address aggregate demand issues down the road, when those who now are losing all or part of their wages are able to come back to work.

The long-term consequences of recessions for U.S. workers

Posted on by Maria Monroe

Policymakers have asked—in some cases, demanded—that people stay home and businesses shutter as a public health crisis has unfolded across the United States, inducing an economic downturn. Despite positive developments in legislation passed last week, those policymakers have not put in place all the steps needed to protect workers and businesses from a full-scale recession that may cast a shadow for years to come. Given the likely scope and scale of this crisis and the current public policy response—which, from both a public health and economic perspective, has been insufficient—it is looking increasingly likely that the United States may be on the cusp of a severe economic recession.

What does the evidence from the Great Recession of 2007–2009 say about what an extended recession could mean for working people over the long term, especially young workers?

There is extensive research on the effects that economic downturns have on workers’ employment and earnings, not just during a recession but also lingering for years and decades afterward. In a new working paper, University of California, Berkeley economist Jesse Rothstein finds that workers who happen to be entering the labor market when there’s a recession have both permanently lower employment rates and lower earnings long after the recession has ended. These effects for recent entrants are even worse than for other members of the U.S. labor force who have been in it longer, as Rothstein explains in a column about the paper:

Workers from these cohorts saw their annual employment rates drop by 2 percentage points to 4 percentage points per year, relative to older workers in the same labor market. Those who were established in the workforce by the beginning of the recession—those who graduated college in 2005 and earlier—essentially returned to prerecession levels of employment by 2014. But those who entered after 2005 have not; their employment rates remain depressed even as the overall market has recovered.

Unfortunately, these effects are not temporary. Rothstein estimates that the permanent effects, or scarring, of the Great Recession on young workers will result in those individuals earning 2 percent less through the early years of their careers and will reduce their employment throughout the course of their career by about one week. While these amounts might sound small for one individual, aggregated across an entire generation, they represent a large loss of earnings and employment.

Another new working paper that explores the negative effects the Great Recession had on young workers in particular is by U.S. Census Bureau economist Kevin Rinz. He finds that from 2007 to 2017, millennials whose local labor markets had higher unemployment lost 13 percent in cumulative earnings, compared to 9 percent for Generation X and 7 percent for the baby-boom generation. (See Figure 1.)

Figure 1

These worse earnings outcomes relative to older workers persisted even as these millennials were more likely to be employed again by 2017. Rinz then discusses a few different reasons why younger workers’ earnings would still be depressed even as their employment improves.

One of those ways is that younger workers, especially millennials, were still less likely to be working for high-paying employers even as their employment recovered. Meanwhile, older workers saw their chances of working for high-paying employers improve roughly proportionately to their likelihood of being employed. (See Figure 2.)

Figure 2

You can read more about Rinz’s paper in this column by Equitable Growth Director of Labor Market Policy Kate Bahn.

One of the reasons it’s so concerning to see that recessions have such negative consequences for young workers is because where you start out in the earnings distribution has important implications for your long-term earnings trajectory—even if you don’t have the bad luck to be entering the labor market during a recession. Research funded by Equitable Growth by Syracuse University economist Emily Wiemers and University of Massachusetts Boston economist Michael Carr found that people are less likely to move up the earnings distribution over the course of their career than they used to. They find that the likelihood of a worker who starts their career in the middle of the earnings distribution moving to the top decile of the earnings distribution has declined approximately 20 percent over the past 40 years.

This means people are more “stuck in place” in the earnings distribution throughout the course of their careers, with less chance of earning more as they grow older and more experienced. This also means that where one starts on the earnings ladder is more indicative of where you will finish in the earnings ladder than used to be true. This is true even for college-educated workers, who may have higher earnings overall but have actually seen their lifetime earnings mobility decline the most.

The combination of these cyclical factors caused by recessions and structural factors driven by long-term changes in earnings mobility have profound implications for the long-term economic opportunity that young workers face. As my co-author Elisabeth Jacobs and I explain in our report, “Are today’s inequalities limiting tomorrow’s opportunities?,” these changes together represent one way in which even highly skilled and highly “human capitalized” workers face lower prospects of economic mobility relative to prior generations.

This means that while much of our political and policy rhetoric continues to emphasize the role of individual skills, education, and hard work to explain economic outcomes, the reality is that far too often, economic outcomes reflect factors beyond an individual’s control, from racial and gender discrimination to the dumb luck of happening to be a young adult entering the labor market during a recession.

Research from the Great Recession indicates that the 2007–2009 downturn had deep and long-lasting negative economic impacts on people. The current downturn caused by our coronavirus-driven economic shutdown has already had dire impacts on workers, seen last week in the unprecedented jump in Unemployment Insurance claim filings. But as we have seen from the research above, recessions’ negative economic effects also linger for years afterward in depressed earnings and employment, and this current downturn may linger even longer due to underlying fragilities in the U.S. economy caused by historically high economic inequality and a porous social safety net.

That’s why it’s crucial that policymakers take swift and decisive action to ensure not only that income keeps flowing in the short term but also that permanent, inequality-fighting policy changes are enacted to improve the country’s safety net and enhance automatic fiscal stabilizers in the long term. The legislation enacted last week is a good down payment on that goal, but further interventions may be needed as our economy continues to suffer from the consequences of the coronavirus.

Getting money urgently to low-wage U.S. workers

Posted on by Maria Monroe

To cushion the blow of the COVID-19 pandemic, the U.S. Congress last week passed and President Donald Trump signed the $2.2 trillion emergency stimulus package, including provisions to send checks of up to $1,200 to each tax-paying citizen and hundreds of billions of dollars more to small businesses to cushion the blow for their laid-off employees. The flow of this emergency relief from the federal government should prioritize low-wage earners, who are at significant health, economic, and financial risk due to the coronavirus and the looming recession. Mobile payments, using electronic transfers and mobile applications, could get money into their hands quickly.

A record number of people are losing jobs. In Michigan, Monday through Thursday last week, 80,000 people, many of whom are low-wage workers, filed Unemployment Insurance claims—a number which exceeds the 60,000 filings at the peak of unemployment following the Great Recession of 2007–2009. Across the United States, nearly 3.3 million people filed for Unemployment Insurance this past week, with expectations of millions more doing so in April.

Low-wage workers, who account for 44 percent of all U.S. workers (roughly 53 million people), are their families’ primary wage earners. These breadwinners are disproportionately women and minorities who live paycheck to paycheck and are therefore most at risk. With no income, these workers are unable to pay bills—rent, mobile phone, health insurance, car and student loans, and mortgages. Consumer spending drives more than two-thirds of Gross Domestic Product. Every bill they cannot pay (to a landlord, a mortgage lender, or a car company) and every business they cannot patronize (their mechanic, favorite restaurant, or neighborhood clothing store) starts a chain reaction that will only deepen this coronavirus recession.

Too little of this federal emergency relief money may well get into these consumers’ hands too late. Most people and small businesses have bills due at the end of the month. They need cash immediately. Direct payments will eventually reach most small businesses and families, but getting these funds to them could take several weeks or perhaps much longer. The most vulnerable who do not file taxes and do not receive benefits, such as Social Security, will be the hardest to reach.

Mobile money could be the answer. The federal government should learn from the decades-long experience with mobile money in developing countries and more recently in the United States. Mobile phone networks sent all Americans with a cell phone an emergency text alert this past October. They could get them money today, especially the most vulnerable.

Mobile payments use electronic transfers and mobile applications. In the United States, mobile payments connect to banks and other financial institutions. Ninety-six percent of American adults have cell phones, and 81 percent have a smartphone that could receive and make mobile payments. Thirty percent of smartphone users made mobile payments in 2019, and this amount was projected to grow before the COVID-19 pandemic. Mobile payments are faster than traditional payments and offer a good way to send money to the 16 percent of Americans who are underbanked.

Smartphone penetration is high among workers most likely to be missed by traditional payment mechanisms—people who have changed addresses and low-wage earners. Ninety-eight percent of adults ages 18 to 29 have smartphones, compared to 81 percent of adults overall. Nearly three-quarters of those earning less than $30,000 have smartphones. The share of African Americans (80 percent) and Hispanics (79 percent) who own smartphones is comparable to the total, but there are larger shares of blacks (23 percent) and Hispanics (25 percents) who use smartphones rather than broadband at home compared to whites (12 percent), according to the Pew Research Center.

Mobile payments preserve the value of the per-person amount distributed by the government by limiting high fees associated with using bank alternatives. With mobile payments, the recipient can choose a platform, such as Zelle and Paypal/Venmo, to connect to a bank. Most services have caps on daily transfers ($2,000 for Zelle and $10,000 for PayPal) and other security features to prevent fraud.

For all Americans, and especially the underbanked, the federal government’s forthcoming stimulus payments should be made available by allowing people to decide which credit union, community bank, or commercial bank to use with a guarantee of no or minimal fees for the recipient. Financial institutions should be reimbursed a small flat rate for these transactions. The U.S. Treasury Department should then use community banks, credit unions, and commercial banks affiliated with mobile payment platforms to facilitate not only the distribution of this emergency relief cash but onward mobile payments to landlords, mortgage servicers, and other creditors. Zelle, for example, is affiliated with 766 such financial institutions across the country.

This possibly very sharp but short economic downturn or an even longer recession is happening at an unparalleled pace. Mobile payments can get cash out fast, particularly to the most vulnerable.

—Lisa D. Cook is a professor of economics at Michigan State University. She was a senior economist at the White House Council of Economic Advisers and led the Harvard University team advising Rwanda on its first post-genocide IMF program.

Congress fights back, and it’s absolutely necessary

Posted on by Maria Monroe
A stimulus package to combat the economic effects of the coronavirus outbreak is in the works.

(This piece was updated on April 1, 2020 to reflect the IRS guidance on the economic impact payments related to the coronavirus recession.)

The coronavirus is killing people at a breathtaking pace—more than 1,000 and counting in the United States and thousands more around the world. Dr. Anthony Fauci and an army of public health experts tell us that we must shut down public life to fight this virus and save lives. Local officials from coast to coast, including Gov. Andrew Cuomo of New York, Mayor Muriel Bowser of Washington, D.C., and Gov. Gavin Newson of California have shuttered nonessential businesses and are asking people to stay at home to contain the virus.

The fight against the coronavirus and our economic recovery come with a price. Last week, more than 3 million people applied for support from Unemployment Insurance, and that number understates the number of workers who lost their jobs or had their hours cut. (See Figure 1.)

Figure 1

More than ever, millions of families are trying to figure out how to pay the bills and feed their children. Thankfully, Congress is fighting back hard. In the early hours of Thursday, the U.S. Senate unanimously passed a $2.2 trillion package to support the economy. Hundreds of billions of dollars will go to states to fight the health crisis, to Unemployment Insurance programs to support those who lose their jobs, to struggling employers big and small, and directly to many women, men, and children that the government can reach. Congress is acting on all fronts and sending big dollars to families, businesses, and states.

This support for the U.S. economy is urgently needed. In addition to workers being laid off, businesses and families are not going to be able to pay their rent at the end of this month. After a decade of economic expansion, finally the people long on the sidelines were coming back to work. It is always the case that the last in—workers or businesses—are the first out. The lost expansion is a tragedy, second only to the lost lives from a coronavirus currently without a cure.

The package passed by the Senate and the House of Representatives and was signed by President Donald Trump on Friday. The package is broad-ranging and has many necessary facets. One key piece will focus on getting money directly to many people—referred to as “recovery rebates” in the legislation. In the next month or two, many people will receive $1,200 from the government. Families will receive another $500 per child. Not everyone will receive money, and some will wait longer than others. Even so, the government is sending money to hundreds of millions of people.

The recovery rebates will total nearly $300 billion. That amount represents 2 percent of consumer spending in 2019 and twice the total dollars of the stimulus payments in 2008 during the Great Recession of 2007–2009. Most importantly, 8 in 10 people in the United States will likely receive a full or partial recovery rebate.

Why spend so much sending money directly to people, even those who still have their health and their jobs? We do not know who will be hit hard by the coronavirus. Many expect the unemployment rate to rise to more than 20 percent by this summer. That level would rival that of the Great Depression. Everyone single person in the country would likely either lose a paycheck or know someone who has.

The reality for many decades has been that the United States is never ready for a recession. Almost one-quarter of households do not have $400 on hand. Small businesses operate with thin margins. And states face balanced budget requirements. None of these groups can make ends meet when income, sales, and tax revenues plummet—especially not when expenses for medical care and care for family members jump.

What do we know right now about the money going to people? When will they get their rebates? Will it show up in their bank accounts before their next rent payment? Sadly, no one knows—neither the former officials who oversaw the 2008 stimulus payments nor the current staff at the Internal Revenue Service. On March 30, 2020 the IRS provided more information on the rebates, which you can find here. One thing we know from past experience is that public servants in the government will do whatever they can to get the money out as quickly as possible. No one wants to see a child go without food or a senior unable to pay for a prescription.

Here is what we know from the legislation—working its way to the president’s desk—on the recovery rebates:

  • Payments will be $1,200 per adult or $2,400 for couples filing an IRS return.
  • For families, there will be an additional amount equal to $500 per child largely under age 17.
  • Adults with incomes higher than $75,000 or couples with incomes more than $150,000 are eligible for a reduced or no payment.
  • The legislation directs the federal government to send the rebates as rapidly as possible. To do so, they will use the most recent payment information on hand at the IRS. People who have not filed their taxes this year but did file last year should receive a payment based on that information.
  • Individuals who receive benefits from Social Security (for retirement, survivor benefits, and disability benefits) and Railroad Retirement Insurance will receive rebates. Other non-filers who receive benefits from the federal government may also be eligible.
  • It takes the IRS time—weeks not days—to create a file of everyone’s payment information and their rebate amount. Once that happens, those who used direct deposit will get their money within days. Limits exist in how many paper checks can go out in one week, but the money will come.
  • In total, families will receive nearly $300 billion, three times stimulus payments in 2008.

No government support put together in an emergency will be perfect. Sadly, it is those people who are most in need who are the hardest to reach. Who will not get a recovery rebate? Too many. First, anyone who does not have a Social Security number, which includes undocumented immigrants paying taxes. Such families are in the path of the coronavirus and deserve the support too—if for no other reason than for public health reasons. In addition, dependents who are adult children, disabled, or elderly parents will not. They need money too.

Will the recovery rebates be enough? Will the rest of the $2 trillion package be enough? That will be determined by the length of the public health crisis, but the answer is probably “no.” By every indication, we are in a recession that will be at least twice as deep and incredibly faster in its severity than the Great Recession. The only apt comparison is the Great Depression. Is it time to throw in the towel and turn on the TV for the duration? No. Congress, the Federal Reserve, and the American people are not done fighting.

We can do better. We need to make policies to deal with recessions automatically. Congress has sent money to people many times in recessions. It should not have taken weeks to get us to a plan we often use. People could already have money in their pockets if the systems were a go three weeks ago. We cannot change the past, but we can prepare for the future. Direct payments to people can and should be automatic. Congress should commit, before a recession, to start many other policies, especially support for the unemployed, as soon as a sign of distress is clear.

This recession will be very severe and the recovery difficult. We need policymakers who will stay the course until we are back on our feet, and then prepare for the next recession so that we can start the next recovery sooner. We will get back on our feet. But we must also be ready to do so next time more swiftly and more surely than today.

To prevent a long-term recession, make the U.S. government the payor of last resort now

Posted on by Maria Monroe
As a result of the COVID-19 outbreak, employee layoffs have surged and businesses have closed.

The United States is facing an unprecedented economic crisis. With a public health-driven, government-ordered shutdown of vast sectors of the economy to slow the spread of the coronavirus, we’ve never seen the U.S. economy crater so quickly.

Quick government action is needed to stanch the flow of mass layoffs and prevent the mass liquidation of businesses. The death of a business has serious long-term costs. The links between entrepreneurs, workers, and customers are destroyed and often need to be rebuilt from scratch. Laid-off workers lose employment benefits, including employer-provided health insurance.

This is a moment, if ever there was one, for economists to provide guidance to policymakers about how to deal with the situation from an economic perspective. That is why the two of us gathered some 100 economists and other policy experts by video conference on March 24 to answer these questions:

  • How do we help people who are losing their livelihoods?
  • How do we help businesses survive the crisis?
  • How, in particular, do we set in place policies to ensure that the downturn does not cause severe damage to the U.S. economy far beyond the actual shutdown?

Numerous ideas were put on the virtual table. Congress has now passed three measures, some elements of which were very much influenced by members of this group, though the approach the two of us advocate has not been adopted. But other countries have implemented similar measures. There is still time to consider our ideas in the United States.

The informal name for what we described to the group is “U.S. government as payor of last resort.” The message it sends to businesses—the message that should be coming from every head of state—is this: Do not lay off your workers or liquidate your business. Government will pay your idle workers and your necessary maintenance costs while you are shut down. Government money is coming soon.

The most direct way to keep businesses alive through this crisis is to have the government act as the payor of last resort. In other words, have the government pay wages and essential business maintenance costs. This would allow locked-down businesses to have their workers continue to be paid instead of being laid off and businesses to keep paying their necessary bills instead of going bankrupt.

There are two parts to this program. For wages, idle workers should immediately start receiving benefits we would call “Employment Insurance benefits.” These workers would still be formally employed, but they would no longer be a cost to their employers, and, importantly, no rehiring process would be needed when they can go back to work. In addition, self-employed individuals such as gig workers could report themselves as idle and be eligible for payments. The program would be run through the nation’s Unemployment Insurance system.

The second part of the program would be payments to locked-down businesses. These companies would report the costs necessary to maintain their business and receive payments for those costs from the government. Necessary costs are rents, utility payments, interest on debt, health insurance for idle workers, and other costs that are vital for the maintenance of the business.

The amounts do not need to be exact. Verification of costs and any needed corrections could take place once the lockdown is over. The advantage of this policy is that businesses could hibernate without bleeding cash and hence without risking bankruptcy.

We can figure out the approximate cost of this program by projecting anticipated loss of Gross Domestic Product. With a nationwide lockdown, about 30 percent of U.S. aggregate demand could evaporate over the next three months, leading to a 7.5 percent drop in annual GDP.

We estimate the cost of the program to be half of this drop, or 3.75 percent of GDP, a lower cost than we might have feared. We estimate that Employment Insurance benefits would replace about 60 percent of wages, while essential business costs are probably less than half of normal operating costs. That averages to approximately half of GDP. This payor-of-last-resort program should be very limited in duration—three months for instance—so the costs remain manageable and long-term business decisions are not affected.

Over the past few weeks, other countries have announced similar programs, particularly Denmark, the United Kingdom, and the Netherlands. Alas, the legislation adopted by the U.S. Congress this week does not go far enough and is not well-targeted to ailing sectors. Business loans help businesses but don’t compensate them for their losses. Direct payments to individuals help alleviate temporary economic hardship but are not well-targeted to those who lose their jobs and are not needed by those who don’t lose their jobs. Unemployment Insurance and paid sick leave policies come closest to helping laid-off workers and those unable to work, but they don’t prevent layoffs and they don’t help businesses.

The program we propose would not, of course, fully offset the economic costs of the coronavirus recession. No matter what governments do, there will be economic losses. But these measures would maintain the cash flow for families and businesses so that the shutdown has no secondary impacts on aggregate demand. This would lay the groundwork for a quick rebound once the epidemic is controlled. That should be our long-term goal.

Research shows paid leave is needed to protect families, workers, and businesses during the coronavirus recession and beyond

Posted on by Maria Monroe

The challenge for U.S. workers of balancing family and job responsibilities amid the coronavirus recession without access to paid family and medical leave is, alas, a familiar story even before the pandemic hit the country. When a new child arrives, loved ones get sick, or a serious illness strikes, people need time away from work. But even at these times of joy or stress, bills and expenses will keep coming, and families must find a way to cope with financial uncertainty. This is not a new challenge, but it is often one that families deal with individually—with every household forced to patch together solutions as best they can.

Now, the rapid spread of COVID-19 and the economic measures taken to “flatten the curve” of its spread expose anew the deep problems with our nation’s lack of federal paid family leave and medical leave programs. Workers will have to take time away from work to take care of themselves, their families, and their communities to cope with this fast-escalating public health crisis.

In response to the pandemic, Congress earlier this month extended limited emergency paid leave for parents dealing with school closures. This measure is temporary and will not help workers who need to remain at home due to serious illness or a sick loved one. A permanent and robust family and medical leave system is needed to help families weather the current public health crisis and support families’ economic security and well-being for years to come.

Traditionally, the conversation around paid family and medical leave has centered around new parents, and, indeed, so has much of the research. Yet, there are many different reasons one may need time away from work. Paid family and medical leave programs at the state level typically cover paid time off to bond with a new child, respond to a spouse’s military service, deal with a loved one’s illness, and deal with one’s own serious illness. As policymakers consider paid family and medical leave options in response to COVID-19 and beyond, they are aided by extensive research on how to design a paid leave system that supports families and the economy. See our new factsheet on paid leave policies amid the coronavirus recession.

Much of what is known about paid family and medical leave comes from research on parental leave. While people will continue to have babies even during a pandemic, parental leave has not been the focus of the response to COVID-19. Rather, the pandemic highlights a critical need for paid medical leave and paid caregiving leave for those dealing with their own illness or that of a loved one.

Less research has been devoted to these types of paid leave, but studies on similar programs suggest that allowing paid time away from work could support individual health, public health, and economic security. See our new factsheets on paid caregiving leave and paid medical leave, and our longer issue brief on these topics amid the coronavirus recession.

The current and even more dire future consequences of the coronavirus recession means it is critical to enact policies based on evidence-backed research about what works. The COVID-19 pandemic highlights the need for permanent paid family and medical leave at the federal level. When this new pandemic is over or when the next one comes along, people will still start families, get sick, and need to care for loved ones. The research strongly suggests that paid family and medical leave can provide important health and economic benefits to families and the broader economy. Policymakers should lean on this research as they work to support families in this time of crisis and beyond.

Paid medical and caregiving leave during the coronavirus pandemic: What they are and why they matter

Posted on by Maria Monroe

(This issue brief draws on a longer report by Jane Waldfogel and Emma Liebman, “Paid Family Care Leave: A missing piece in the U.S. social insurance system.”)

Overview

In response to the new coronavirus health crisis, workers across the United States need paid time off to deal with their health needs and the health needs of loved ones. At the state level, three main types of paid time away from work are provided to meet these needs: paid sick days, paid medical leave, and paid caregiving leave. (See Table 1.)

Table 1

The traditional mechanics of paid sick days in the United States are perhaps the most familiar to most people. As a worker amasses more hours on the job, she accrues time off at her full rate of pay to cover a few days of absence from work to attend to short-term medical needs. People use paid sick days to attend doctor’s appointments, recover from short-term illnesses such as colds, and to care for family members with short-term ailments. Paid sick days are offered voluntarily by many employers, and laws in many states and municipalities guarantee workers the right to earn paid sick days. Recently passed federal law gives some workers access to paid sick days for needs related to COVID-19, the scientific name for the disease caused by the new coronavirus, if they work for a qualifying employer.

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Paid medical and caregiving leave during the coronavirus pandemic: What they are and why they matter

Paid medical leave and paid caregiving leave may be less familiar concepts. The term “paid family and medical leave” often conjures the image of leave to care for a new child. Yet paid leave encompasses much more. Paid family and medical leave programs at the state level typically cover four types of paid time off:

  • Leave to bond with a new child
  • Leave related to a spouse’s active duty military service
  • Leave to deal with one’s own serious medical issue
  • Leave to care for a loved one with a serious medical condition

Though some employers provide paid medical leave through private Temporary Disability Insurance providers, paid caregiving leave is not widely provided by employers. Large swaths of the U.S. workforce have no access to paid medical leave, nor to paid caregiving leave.

Over the past two decades, eight states and the District of Columbia have sought to extend coverage to more workers, passing laws that provide the workforce with both paid medical leave and paid caregiving leave. There is wide variation in leave length, but typical state policies allow for 6 weeks to 26 weeks of leave with partial wage replacement.

These programs are funded using a social insurance model, such as the Social Security program and the Unemployment Insurance program. A small payroll tax is collected to fund benefits for eligible workers who need time off with wage replacement when a qualifying event occurs. Some state paid leave programs provide job protection—the right to return to your job when your leave finishes—and some do not.

There are other legal protections at the federal level that give workers the right to unpaid leave that is job protected: the Family Medical Leave Act, the Americans with Disabilities Act, and the Pregnancy Discrimination Act. If a worker’s state paid leave program does not offer job protection, then, as a work-around, she can take job-protected unpaid leave through the Family Medical Leave Act, the Americans with Disabilities Act, or the Pregnancy Discrimination Act simultaneously with unprotected paid leave. Not all workers qualify for these federal protections, so some must take paid leave without a guarantee that their job will be available when they return.

When a personal medical need, family caretaking need, or public health crisis emerges, paid time away from work is critical for individuals, families, public health, and the broader economy. For decades prior to the new coronavirus crisis and looming coronavirus recession, Congress failed to establish a social insurance program providing wage replacement during personal medical leave and caregiving leave. Perhaps one reason that Congress has failed to act is a shortage of information on what precisely paid medical leave and paid caregiving leave are and what benefits they bring to individuals, family members, businesses, and the economy as a whole. Below, we discuss paid medical leave and paid caregiving leave in turn. We cover the evidence base on how medical leave and caregiving leave affect both health and economic outcomes.

Paid medical leave

To best draw conclusions on how paid medical leave affects people’s health and finances, we would look to causal inference studies that evaluate the effects of social insurance programs that provide paid medical leave. However, researchers rely on policy variation to draw conclusions about the effects of programs, and for paid medical leave, policy variation has been poorly timed. Rhode Island, California, New Jersey, New York, Puerto Rico, and Hawaii all launched programs prior to 1970—when data quality was limited—and their programs have remained relatively unchanged over time. The next paid medical leave program to be implemented was in Washington state, in 2020, and not enough time has passed to evaluate that program.

As a result, very few studies have been conducted on paid medical leave specifically. Yet by looking at the literature on private Temporary Disability Insurance and paid sick days, we can gather important information on how paid medical leave is likely to affect the health and economic outcomes of those who take it.

Health outcomes

Research on the impact of paid medical leave on health outcomes is still emerging. Evidence to date suggests there are several different mechanisms through which paid medical leave may have an effect. These include improved health management, reduced financial stress, and improved public health. Let’s examine each in turn.

Health management

One of the strongest signals that paid medical leave may impact health outcomes comes from research on paid sick days. Broadly speaking, having access to paid sick days is associated with a significantly lower risk of mortality across a wide range of conditions. The nature of this relationship is still being studied, but evidence suggests access to paid sick days better enables workers to manage a new health condition, for instance by seeking preventative care and earlier treatment of conditions.

Data from the National Health Interview Survey appears to support this idea. One study found that workers with access to paid sick days were significantly more likely to seek preventive medical care, such as mammograms, pap tests, and endoscopies, than other workers after controlling for other factors. Studies have also found that when workers have access to sick leave, they take more time off work for health-related reasons. Studies also find workers visit emergency rooms less. This suggests that workers with paid leave may be better able to schedule medical appointments, thereby avoiding the use of emergency rooms for less-urgent conditions.

Conversely, workers without access to paid sick days are significantly less likely to receive preventive health screenings, even when they are aware that they face higher medical risks. These findings are also important because early treatment of a health condition has been found to reduce the severity and duration of the condition.

Delaying or forgoing leave while sick or injured can have serious health consequences. One longitudinal study of a cohort of British civil servants, known as the Whitehall II study, found that unhealthy men who took no sick leave were twice as likely to experience a serious coronary event, compared to unhealthy men who took moderate amounts of sick leave. Similarly, a study that linked responses to a survey of Danish workers with administrative data on social welfare payments found that respondents who went to work ill more than six times over the past year had a 53 percent higher risk of taking medical leave for at least two weeks and a 74 percent higher risk of taking leave for more than 2 months after adjusting for confounding factors.

But not all the evidence is clear or consistent. A doctoral dissertation using the Medical Expenditure Panel Survey, which provides a 2-year follow-up to the National Health Interview Survey, did not find clear patterns of a change in leave-taking when workers experienced a job change that makes them lose or gain access to paid sick days.

Stress reduction

Paid medical leave may also improve health outcomes for workers by reducing stress associated with a financial insecurity due to a health shock. Taking time away from work to address a medical condition is a common source of financial strain for workers and families, one that can also add stress on workers who are already concerned with their health. Stress, regardless of its source, has been shown to negatively impact physical and mental health. In addition, research from developed countries shows that income levels directly affect mortality. Research also finds that severe debt is correlated with poor health.

To the extent that paid medical leave reduces stress associated with financial strain, it could also lead to improved health for workers. Research on the impact of the Earned Income Tax Credit and disability benefits suggests income supports can have significant positive effects. A study of the impact of an increase in this tax credit in 1993 was associated with an improvement in maternal health. It is thought that a reduction in financial stress was an important factor.

Similarly, a study taking advantage of the discontinuities in the Social Security Disability Insurance benefit formula finds “that $1,000 in annual SSDI payments decreases the annual mortality rate of lower-income beneficiaries by approximately 0.1 to 0.25 percentage points.” Beneficiaries with higher past earnings and the largest disability benefits did not experience the same benefits.

Public health

The literature on paid sick days suggests paid time off to address certain illnesses may have important positive effects on public health by helping to reduce the spread of contagious diseases. This evidence could have implications for medical leave or show opportunities for new research.

An analysis of local and state sick leave mandates in the United States using Google Flu Trend data found a significant reduction in the general flu rate after the mandates were implemented. These public health benefits also have spillover benefits for employers through reduced absenteeism. One study using seven panels of the Medical Expenditure Panel Study—which surveys people, their employers, and their healthcare providers—concluded that paid sick days reduce overall absenteeism by reducing the spread of influenza-like illness. The study estimated that reduced absenteeism due to paid sick days could have saved employers $630 million to $1.88 billion per year in 2016 dollars. It is possible that paid medical leave could also impact public health, but to what extent is unclear. Paid medical leave could be important to people suffering from complications due to COVID-19.

Economic outcomes

Serious medical conditions that require time away from work can pose a threat to workers’ economic well-being. They can lead to an immediate reduction in income from wages while the worker is on leave, an increase in out-of-pocket expenses for medical care, and a heightened risk of job loss.

Employers and the broader economy are also affected when work-limiting medical conditions lead to worker absences, reductions in productivity, and the loss of skilled staff. Government programs and spending also are affected when workers lose wages and employment, and must turn to public assistance programs for support.

Paid medical leave could help address these challenges, but existing research on the direct effects of paid medical leave specifically is scant and is limited to specific medical conditions. But related research on sick leave, income security, occupational health, and disability programs suggests paid medical leave could affect economic outcomes by reducing income volatility, helping workers to return to employment after taking leave, reducing productivity loses due to presenteeism, and supporting greater labor supply and long-term labor force participation.

Income shocks

Work-limiting medical conditions that threaten a worker’s economic stability often arise suddenly. These health and income shocks can put many medium- and low-wage workers and their families at risk of hardship when a medical condition forces someone to stop working for a period of time. A 2015 study by The Pew Charitable Trusts found that 1 in 3 families report having no savings at all and that approximately 41 percent of families did not have enough emergency funding to cover an unexpected $2,000 expense. For these families, taking weeks of leave to address a health condition without wage replacement would be very difficult or even catastrophic. A median worker’s weekly earnings, for example, in the third quarter of 2019 was $360, according to the Bureau of Labor Statistics. For this median-wage worker, 12 weeks of unpaid medical leave would reduce gross take home pay by $4,320.

Income disruptions make families significantly more likely to face eviction and to miss payments for housing and utilities. Families dependent on a single wage earner are especially vulnerable. Research on savings and assets, however, shows that even small amounts of savings can help families weather income disruptions. While 21.1 percent of families with savings of $249 or less missed a housing payment, that percentage falls to 15.2 percent when families have savings of between $250 and $749. Similarly, the additional income available to workers through paid medical leave could boost family finances enough to improve their ability to weather health-related income disruptions.

For many workers, a loss of wages due to medical leave is often further compounded by an increase in out-of-pocket medical expenditures, an important factor in analyzing the potential consequences for workers and families. A study of the 2007–2008 panel of the Medical Expenditure Panel Study found workers with a temporary disability pay approximately 22 percent of their healthcare expenditures out of pocket, or an average of $388. More broadly, the Federal Reserve found that “one-fifth of adults had major, unexpected medical bills to pay,” with these bills most often totaling between $1,000 and $4,999, and about 40 percent of those with bills had unpaid debt.

A Journal of the American Medical Association research letter summarized a survey of patients with stage III colorectal cancer that found respondents without paid sick or medical leave reported significantly higher personal financial burdens, including a higher rate of borrowing money and having difficulty making credit card payments, and a significantly greater likelihood of leaving their job. In addition, workers who lose their job may also lose access to employer-provided health insurance.

The consequences of unmitigated economic shocks due to medical problems extend across people’s financial lives and affect participation in social programs. The onset of poor health is a significant factor in early withdrawals of 401(k) retirement savings plans. Paid medical leave could help workers avoid or reduce the extent to which they tap retirement savings to deal with health shocks. For lower-income workers eligible for means-tested programs, such as the Supplemental Nutrition Assistance Program, taking unpaid medical leave could increase their benefits. Using National Health Interview Survey data and controlling for many factors, one study found that working-age adults without paid sick days are 1.41 times more likely to receive income from a state or county welfare program and 1.34 times more likely to receive Supplemental Nutrition Assistance Program benefits. When workers receive paid leave benefits, however, they contribute additional tax revenue based on those benefits. To the extent that paid medical leave supports labor force participation, it also leads to higher contributions to the Social Security trust funds, both strengthening the program’s finances and increasing their retirement benefits.

Labor force participation

Creating a new paid medical leave benefit could have implications for long-term labor force participation. Yet the nature of the relationship between such a benefit and labor supply is complex and not fully understood.

In the short term, access to paid medical leave may reduce the risk of job separations. One study using several panels of the Medical Expenditure Panel Study found that access to paid sick days reduced job separations, suggesting paid medical leave may have a similar effect. More specifically, the study found that, after controlling for many worker and job characteristics, “paid sick days decreases the probability of job separation by at least 2.5 percentage points, or 25 percent.” This effect is comparable to what has been found with employer-provided health insurance. In addition, some experts suggest that a medical leave or short-term disability benefit creates an opportunity for employers to provide supports and accommodations that could improve overall labor force participation.

Over the longer term, some research suggests that the provision of short-term disability benefits, which are typically offered for a duration of six months or longer can increase applications to long-term disability insurance by reducing the costs associated with the long waiting period for those benefits. However, studies are mixed on the extent to which this effect is seen in actual labor force participation.

Further, it is not clear whether or how these findings pertain to shorter-duration paid medical leave benefits, such as those that only last 12 weeks. One study that looked at a change in German law to reduce the generosity of benefits for sick leaves lasting longer than six weeks found no evidence that the duration of absences decreased, as would be expected if a significant moral hazard existed. The study also found, however, that lower-income and middle-aged subgroups may be more sensitive to these changes. Similarly, one study used the gradual phase-in of nine city-level and four state-level sick leave pay mandates on employers and found neither employment nor wage growth was significantly affected.

Paid caregiving leave

The first state to implement a social insurance program covering paid caregiving leave was California, in 2004. New Jersey followed in 2009, and then Rhode Island (2013), New York (2018), and Washington state (2020) followed suit. The evidence thus far suggests that the state programs are popular, though perhaps underused. Each of these states implemented paid leave to bond with a new child (often referred to as “parental leave”) simultaneously to their enactment of paid caregiving leave (leave to care for older children and other family members), and most of the research literature to date has focused on paid parental leave, which is more commonly used than paid caregiving leave.

This larger body of work on paid parental leave, however, is instructive in thinking about the likely health and economic effects of paid caregiving leave. Here’s what we know from the available evidence.

Health outcomes

Evidence from parental leave studies indicates that state paid leave programs improve caregiver and care recipient health, suggesting that time with pay to focus on caregiving responsibilities helps caregivers maintain their own health, as well as care for others. One study using data from the Panel Study of Income Dynamics to examine outcomes for parents of young children in California found that the introduction of paid family and medical leave improved the self-rated health of caregivers, as well as improving psychological health for mothers and reducing alcohol use for fathers.

Similarly, an Australian study found that the introduction of a national paid maternity leave program led to small improvements in both mental and physical health for mothers. And more research from California shows improvements in child health, as well as a 10 percent to 24 percent improvement in maternal mental health, suggesting that paid caregiving leave can yield dividends for the care recipient and caregiver alike.

Research on home-based care also offers suggestions about the health outcomes we might expect from caregiving leave. A 2019 study, for example, that used data from a demonstration project that randomly assigned cash allowances to Medicaid beneficiaries eligible for homecare, found that increased family involvement in home-based care improves health outcomes for the care recipient. The study found that recipients had a lower likelihood of emergency room use and lower incidences of bed sores and infections.

Taken together, these results are promising. Still, they are by no means exhaustive. More comprehensive research is needed to establish that state caregiving paid leave provisions improve health outcomes for leave-takers and care recipients across the board.

Economic outcomes

By providing workers with partial wage replacement during time away from work while caring for a loved one, paid caregiving leave has the potential to improve economic outcomes for workers and employers. The research literature suggests that caregiving leave is likely to boost labor force participation without harming employers.

Labor force participation

With the exception of a small number of studies, the bulk of the evidence suggests that paid leave for new parents increases labor force participation. The research suggests that paid parental leave in California, for example, increased the likelihood that a new mother was working a year after the birth of her child by 18 percentage points, and 2 years following the birth, mothers’ work hours and their weeks at work were 18 percentage points and 11 percentage points higher, respectively, than comparable mothers prior to the implementation of the paid leave policy. Perhaps these increases in labor force participation ameliorate poverty for the most vulnerable caregivers of new children. One study finds that the introduction of paid leave in California is tied to a 10.2 percent decrease in the risk of new mothers dropping below the poverty threshold and disproportionately helps women with lower levels of education and who are unmarried.

While the evidence base is comparatively thin with regard to caregiving leave, one study finds that following the implementation of paid leave in California, labor force participation of caregivers increased by 8 percent in the short run and even further (14 percent) in the long run. This effect was concentrated among women.

Employer responses

Employer responses to paid family leave programs in California, New Jersey, and Rhode Island have been predominantly neutral or positive. Although there had been some concerns before the laws went into effect about the potential costs associated with paid leave entitlements—such as increased administrative burdens or the need for firms to hire temporary replacements—the majority of employers across all states with operational paid leave programs and across all firm sizes have reported neutral or positive attitudes toward the laws. In a 2011 survey analyzing the California paid family leave program, 90 percent of employers reported that the program had a neutral or positive effect on profitability, and 8.8 percent reported that the paid family leave program had saved their firm money.

Similarly, a study of New Jersey’s paid family leave program found that 10 percent of employers felt that the program had a negative effect on the firm’s profitability, with 80 percent reporting neutral experiences and another 10 percent reporting that the program increased profitability. Research comparing employer responses before and after Rhode Island’s law went into effect found that the law had no overall impact on employers, and that two-thirds of employers were somewhat or very supportive of the law. A similar survey also found that two-thirds of employers in New Jersey were supportive of the law.

The lack of negative responses on the part of employers in California, New Jersey, and Rhode Island probably is because many employers are able to avoid hiring a new employee during the leave period of the absent employee and instead can distribute that leave-taker’s work to other employees. In addition, for employers who previously relied on their own paid leave provisions, paid leave programs could potentially decrease costs by allowing the state payroll tax to foot the bill rather than paying employees themselves.

Conclusion

As of the publication of this brief, Congress has failed to provide paid medical leave and paid caregiving leave to any workers in the United States, even those affected by COVID-19. The recently introduced PAID Leave Act would extend these benefits to workers affected by COVID-19 and a broader range of medical problems. The rise of COVID-19 shines a light on the need for permanent paid caregiving and medical leave enacted at the federal level.

People become seriously ill all the time. The research reviewed in this brief provides evidence that paid leave for the seriously ill and their caretakers over weeks and months can provide important health and economic benefits to individuals and to society broadly over months and years. Had a paid medical leave and paid caregiving leave social insurance program already been in place at the federal level when COVID-19 struck, the mechanics would have been in order to disburse funds to workers taking caregiving and medical leave as a result of the COVID-19 pandemic.

Paid caregiving leave: A missing piece in the U.S. social insurance system

Posted on by David Evans

Amid the ongoing public health crisis from the COVID-19 pandemic, many individuals can expect to be called away from work to care for a sick loved one or a child out of school. To support these workers during the coronavirus recession and beyond, paid family and medical leave is receiving increased attention in the United States by policymakers, employers, media, and the public.

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Paid caregiving leave: A missing piece in the U.S. social insurance system

Family leave encompasses several distinct types of leave, including leave to care for a newborn or newly adopted child (generally referred to as parental leave), as well as leave to care for a family member with a serious illness, whether that be a spouse, domestic partner, child, parent, or other relative. In contrast to other types of leave—in particular, parental leave, which has been studied extensively—caregiving leave receives much less attention in existing research. Though all states with paid family and medical leave programs cover caregiving leave, its inclusion in policy proposals at the federal level is uneven.

Even in the absence of a public health crisis, the aging of the baby-boom generation means that millions of working families are part of a growing “sandwich generation,” juggling care for young children and aging parents. Many will need time off work to care for a seriously ill child or older family member. Further, access to paid caregiving leave during a public health crisis can help workers take the time they need to care for a loved one without risking their financial security or the further transmission of an illness.

This factsheet draws on and updates a 2019 report by the Washington Center for Equitable Growth on why paid caregiving leave is a policy with important economic, social, and health implications for U.S. employers, employees, and their family members.1

Paid caregiving leave

Paid caregiving leave is defined as leave with partial wage replacement to care for a family member with a serious illness, including a spouse, domestic partner, child, parent, or other loved one. It is distinct from parental leave, which is leave to care for a newborn or newly adopted child, and from medical leave, which is leave to care for one’s own serious illness. There is no permanent national paid caregiving leave program, though Congress has authorized limited emergency paid leave benefits for some families in response to the COVID-19 pandemic. A number of states have passed laws implementing paid caregiving leave programs on a permanent basis.

Unpaid caregiving leave

Existing U.S. federal law only provides for unpaid, job-protected caregiving leave, but eligibility exclusions seriously limit the law’s impact on caregiving leave-taking.

  • The Family and Medical Leave Act of 1993 is the only permanent federal legislation that directly confronts families’ need to balance both work and care. The law entitles certain workers to unpaid, job-protected time off for approved reasons, including the need to care for a seriously ill family member. But the law’s eligibility requirements mean that many of the workers who most need access to leave do not have it.2

  • More than 40 percent of the private-sector workforce is ineligible for unpaid leave under the Family and Medical Leave Act.3 FMLA does not cover workers at firms with fewer than 50 employees within a 75-mile radius of the employee’s worksite, effectively excluding small-business workers. Employees must have worked at a covered firm for at least 12 months and logged at least 1,250 hours during the past year to be eligible for unpaid, job-protected leave. Low-income workers both face the highest risk of family illness and are the least likely to be eligible for FMLA leave due to higher levels of employment in small firms and shorter job tenures.4

  • The Family and Medical Leave Act narrowly defines “family.” FMLA has a restrictive definition of family that bars workers from taking job-protected leave to care for siblings, grandparents, grandchildren, or domestic partners.5 Having an inclusive definition of family is critically important, particularly during periods of public health crisis, when workers may be called upon to provide care for loved ones when their regular caregiving options are not available.

Many employees cannot afford to take unpaid time off for caregiving

  • Nearly half (46 percent) of FMLA-eligible workers who express an unmet need for time off did not take leave because they could not afford to do so. Another 17 percent of these workers cited fears that they might lose their job.6

  • Access to paid time off is unevenly distributed across the income distribution. Among those who took caregiving leave, 53 percent of workers with below-median family income in the United States received no pay during their time away from work, as compared to 17.7 percent of those with family incomes above the median.7

  • Most employees who do receive pay during caregiving leave cobble it together from banked sick or vacation time.8

The lack of paid caregiving leave has consequences for workers, families, and employers

Workers experience:

  • Financial hardship due to foregone earnings. Fifty-seven percent of employees with incomes of $30,000 or less took on debt after a partially compensated or uncompensated leave, and nearly half (48 percent) relied on public assistance to cover lost wages during their leave.9

  • Reductions in work time due to the need to restructure one’s work life in the absence of compensated leave. Many caregivers report reducing work hours, switching to less demanding jobs, working part time, or retiring early in order to meet their caregiving needs.10 Even when these changes are voluntary, these reductions in work time lead to a reduction in take-home wages, employee benefits, and career advancement prospects, while early retirement reduces earnings and future Social Security benefits. These trade-offs are especially difficult for low-income families, many of which are most likely to have a seriously ill family member and least likely to have access to unpaid FMLA leave or paid leave.

  • Negative health consequences for both the worker and the family member in need of care. Taking unpaid leave has negative mental and physical health consequences for the caregiver, compared to paid leave takers. The absence of paid leave leads 38 percent of caregivers with little or no compensation to cut their caregiving leave short, potentially leading to adverse consequences for seriously ill individuals.11

Employers experience:

  • Recruitment challenges. Workers view paid leave as an important benefit, and it may impact an employer’s ability to recruit and retain talent, especially in tight labor markets. More than one-quarter of working Americans cite paid leave as the benefit that would help them most, including 38 percent of those who have needed or taken it in the past.12

  • High turnover. The absence of paid caregiving leave creates retention challenges. Nearly all (97 percent) of leave-taking employees who receive full pay during their leaves return to the same job they held prior to their leave. Yet only 85 percent of those receiving partial pay and 74 percent of those receiving no pay returned to their jobs.13

  • Productivity drag. Workers without access to paid leave may work distracted and preoccupied by stressors at home. Some may struggle with mental health issues due to overlapping care and work responsibilities. Firms may lose more money on employees who are not fully focused on the job than they would by covering paid leave.14

Research suggests that paid caregiving leave could bolster public health and the macroeconomy, especially in times of public health crisis

  • Public health. Allowing workers flexibility to take time away from work is a public health benefit.15 During times of a public health crisis, such as the current COVID-19 pandemic, many workers may be called away to care for a sick loved one. Without access to paid caregiving leave, workers may try keep working while also providing care or return to work early. In either case, this could result in the unintended spread of a dangerous illness. While research on paid caregiving leave has largely left the public health effects unexamined, the literature on paid sick day offers important clues. It suggests that paid time off to address contagious illnesses may have important positive effects on public health by helping to reduce the spread of contagious diseases. An analysis of local and state paid sick day mandates in the United States using Google Flu Trend data found a significant reduction in the general flu rate after the mandates were implemented.16

  • Emergency care. During a public health crisis, schools and business may indefinitely close to help slow the spread of a disease, and workers may need to care for healthy family members who need assistance with daily activities due to age or disability. Currently, six states allow workers to use paid sick days in such instances.17 The Families First Coronavirus Response Act of 2020 allows for emergency paid family and medical leave to care for a child if their school or regular place of care is closed due to a public health emergency. But this emergency paid leave provision only extends through the end of 2020. Permanently guaranteeing this provision would allow workers to care for their loved ones, regardless of health, whenever an emergency may strike. The effects of this type of emergency caregiving on education, health, and economic outcomes has not been well-studied yet.

  • Macroeconomic growth. A bulk of the research on paid leave suggests that it improves labor market participation for women, which likely translates to improved Gross Domestic Product outcomes.18 While most of this research relates to parental leave, there is good reason to believe caregiving leave could have similar results. Additionally, paid leave would reimburse caregivers for their unpaid labor, which could induce consumer spending and economic growth. According to some estimates, the value of care provided by unpaid caregivers is more than $470 billion annually.19 Despite this, caregiving leave appears underutilized in states where it is available. In California, for example, AARP estimates there were 4.5 million unpaid caregivers in 2013, but that same year, only 27,306 caregiving claims were filed.20 Improving caregiving leave take-up could help get some caregivers compensated for the valuable care they provide.

Paid caregiving leave at the state and local level

Eight states plus the District of Columbia have passed comprehensive paid family and medical leave legislation that covers caregiving leave, along with parental and medical leave.21 Evidence suggests that these programs are working as designed.

  • Paid leave programs are popular. While caregiving leave represents the smallest of the three types of leave (bonding/parental, medical, and caregiving), usage is growing over time. In California, for example, the number of individuals using caregiving leave annually has increased by approximately 57 percent in the past decade.22

  • Employer responses to paid caregiving leave in the states have been predominantly neutral or positive, including among small businesses. For instance, a large majority of businesses in California said the state’s paid leave law has had positive or non-noticeable effects on productivity (88.5 percent), profitability (91 percent), turnover (92.8 percent), and morale (98.6 percent).23 Similarly, in New York, New Jersey, and Rhode Island, two-thirds of employers were supportive of their state’s paid leave programs, and another 15 percent to 20 percent were neutral.24

  • Studies on parental leave imply that paid caregiving leave will be positive for both workers and caregivers. The availability of paid parental leave in California reduced new mothers’ receipt of public assistance and food stamps, a finding that is likely to translate over to caregiving leave.25 Results on the impact of paid leave on parental mental health also suggest that paid caregiving leave may improve caregiver mental health.26

Existing paid caregiving leave works for everyone

The state and local examples above illustrate how to provide leave in a cost-effective way that benefits families:

  • All of the existing paid caregiving leave programs utilize a social insurance model that relies on a small payroll tax. California, New Jersey, New York, and Rhode Island fund the program with a small payroll tax on employees, while Washington state, Massachusetts, and the District of Columbia are funding their new programs through a joint employee-employer payroll tax or, as in Washington, D.C., an employer-only payroll tax.27

  • Employers in existing paid leave programs have not reported that the cost of covering for workers out on leave is a problem. No evidence suggests that this has posed a problem for businesses to date. Instead, many employers are able to avoid hiring a new employee during the leave period and redistribute the leave-taking employee’s work to colleagues during the leave period.28

  • Leave length should be short enough that the workers perceived as most likely to take leave do not face discrimination. Research from Europe suggests that very lengthy leaves (of more than 1 year) may have adverse effects on women, the group most likely to take parental leave, as employers discriminate against people seen as likely to take leave.29 No evidence of discrimination exists for shorter leave durations.

What does the research say about paid family and medical leave policy design options in the United States?

Posted on by David Evans

Policymakers have failed to provide Americans with guaranteed paid family and medical leave at the federal level. As a result, working families across the United States must strike a delicate balance: attending to their own medical needs and caregiving responsibilities at the same time as they keep the economy humming through their activities in the workplace. When a new child joins a family, when a serious personal medical need strikes, or when a loved one has an acute need for care, workers need time off from work. To keep the lights on and a roof overhead, they need pay during this time. And when a public health crisis strikes, this need for paid time off for one’s personal health needs and caretaking responsibilities is amplified.

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What does the research say about paid family and medical leave policy design options in the United States?

In response to the coronavirus recession sparked by the COVID-19 pandemic, Congress has considered several proposals to expand limited paid family and medical leave for the duration of the public health crisis. To date, there is no permanent paid family and medical leave guaranteed at the federal level. In recent years, multiple policy approaches to providing paid leave permanently have emerged on both sides of the aisle in Congress. In February 2019, the Family and Medical Insurance Leave, or FAMILY Act—a bill that would create a national paid family and medical leave program—was reintroduced by Democrats in the 116th Congress as H.R. 1185/S. 463. In March 2019, Republicans offered two proposals that would allow parental leave in exchange for delayed Social Security claims upon retirement, the New Parents Act (H.R. 1940/S. 920) and the Child Rearing and the Development Leave Empowerment Act. In late 2019, Congress passed the Federal Employee Paid Leave Act (H.R. 1534), which extended paid leave benefits to millions of federal employees.

As more states and policymakers begin to focus on long-term access to paid leave for workers, it is important to consider the learning from states and countries that already guarantee paid family and medical leave. Five states have implemented paid leave programs—California (2004), New Jersey (2009), Rhode Island (2014), New York (2018), and Washington state (2020)—while Massachusetts, Connecticut, and Oregon, alongside the District of Columbia, are all in the process of implementing paid leave programs. This factsheet examines these existing paid leave programs in light of the pressing need for a federal solution that meets the needs of working families, employers, and the economy as a whole.

Reasons for implementing federal paid family leave

The evidence suggests that paid leave from employment for the following reasons is a key element of effective policy design:

  • Care for a new child
  • Care for a child, parent, spouse, or domestic partner with a serious health condition
  • Address one’s own serious health condition
  • Address a “qualifying exigency” arising out of a servicemember’s deployment or injury

Evidence from the states with paid family and medical leave suggests that they can support families in these circumastances while improving well-being and labor-market outcomes.

Well-being

In a public health emergency, access to paid leave may slow the spread of a pandemic and reduce families’ economic uncertainty. Without guaranteed paid family or medical leave, employees who are ill or caring for a sick family member may continue working in order to avoid financial hardship. These employees may show up at work while unknowingly carrying an illness, increasing the risk to public health. Currently, six states allow for paid sick leave during public health emergencies.30 While research on paid medical and caregiving leave has largely left the public health effects unexamined, the research on paid sick days offers important clues. It suggests that paid time off to address contagious illnesses may have important positive effects on public health by helping to reduce the spread of contagious diseases. An analysis of local and state paid sick day mandates in the United States using Google Flu Trend data found a significant reduction in the general flu rate after the mandates were implemented.31

The research suggests paid parental leave has a range of positive outcomes for both children and parents. One in 10 first-time mothers who work during pregnancy go back to work within the first month of their child’s life.32 In the absence of paid leave, too many families face an impossible choice between economic security and the health and well-being of their family. A growing body of research suggests that paid parental leave can improve a range of early child outcomes, including infant mortality, low birth weight, preterm births, breastfeeding rates, and pediatric head trauma, as well as later-in-life outcomes, including lower rates of attention deficit/hyperactivity disorder, obesity, ear infections, and hearing problems.33

The research suggests paid caregiving leave has a diverse set of positive outcomes for both care recipients and caregivers. A growing body of evidence suggests that paid caregiving leave supports positive outcomes for care recipients, including mental and physical health outcomes for disabled children with a family caregiver receiving paid leave.34 Evidence from California suggests that paid caregiving leave reduced nursing home occupancy among the elderly, possibly because enhanced access to family caregivers reduced nursing home stays.35 Research also suggests positive emotional health outcomes for paid leave for parents of children with special needs, as well as positive emotional and physical health outcomes for family caregivers providing care to aging relatives.36

Labor market outcomes

The demand for paid medical leave is high, and early research findings suggest positive labor market outcomes for those who take it. The vast majority of paid leave users are taking paid leave for their own medical needs. In the first 10 years of California’s program, workers registered more than 9 million medical leave claims, as compared to nearly 1.6 million parental leave claims and 175,198 caregiving claims.37 This suggests that many workers across the country could benefit from paid time off to attend to their own health if such an option were available. A recent study on paid medical leave in Rhode Island suggests that recipients who received paid leave along with vocational rehabilitation services were more likely to return to work and to receive higher wages than those who were not in the program.38

Most research on paid family and medical leave indicates improved labor market outcomes for new parents. Research on California’s paid family leave program finds that paid leave increased weekly work hours for mothers of young children by 6 percent to 9 percent, and their wages may have risen similarly.39 A 2019 study from California found that paid leave fosters an average $3,407 increase in income and is associated with a 10.2 percent decrease in the risk of new mothers dropping below the poverty line 1 year after childbirth.40 Evidence on long-term labor market outcomes is more nuanced, but one recent study suggests that access to paid leave in California and New Jersey improves the probability of labor market participation by 20 percent for new mothers in the years following her child’s birth.41

The research to date demonstrates that comprehensive paid family and medical leave has minimal impacts on employers. Data from California find no evidence that employee turnover at firms increases or that wage costs rise when paid leave-taking occurs.42 In New York, New Jersey, and Rhode Island, two-thirds of employers were supportive of their state’s paid leave programs, and another 15 percent to 20 percent were neutral.43

Definition of family members in paid leave programs

The evidence from the states suggests that an inclusive definition of family is key to meeting the caregiving needs of modern families:

Research tells us that today’s families include a diverse range of caretaking relationships. With 3.9 million babies born annually in the United States, parental leave is often at the center of the discussion on paid leave, but data on caregiving needs tells us that the focus of paid leave cannot end with new parents. In the United States, more than 34 million individuals are unpaid caregivers for individuals over the age of 50 who need help because of a physical or cognitive limitation.44

Additionally, many parents need to provide care to their disabled or sick children after the early period of life covered by parental leave. For instance, 16,000 children are diagnosed with cancer in the United States annually, and cancer and birth defects are the two most commonly listed reasons for a care claim in California’s program.45 During a public health crisis, workers may be called upon to provide care for adult children, extended family, or other adult individuals with familial-type relationships. Having an inclusive definition of family that includes older children, extended family, and close individuals not related by blood is vital in ensuring that workers can provide necessary care to the important people in their lives without risking economic uncertainty.

Length of leave for paid family leave

The evidence from state and international paid leave programs suggests reasonably lengthy periods of paid leave can have meaningful and positive impacts for recipients:

Research suggests that maternity leave entitlements under 1 year can have significant positive impacts for women and children. Leave entitlements under a year can improve job continuity for women and can increase their employment rates and wages several years after childbirth. For instance, extensions in job-protected maternity leave up to 1 year in Canada led to a 22 percent increase in the probability that a mother returned to her prechildbirth employer.46 The International Labour Organization’s standard for the duration of maternity leave has been 14 weeks since 2000, and 98 out of 185 counties with paid leave policies and available data meet or exceed this standard.47

Data from state programs indicate that recipients only take as much medical leave as their condition warrants, which is typically less than 12 weeks. Medical leave lengths vary depending on the specific needs of the condition. Cancer treatment, for example, may require a longer leave than recovery from a broken ankle.48 This evidence suggests that employers need not worry about workers taking advantage of their leave when offered.

Wage replacement during paid family leave

Evidence from the states suggests that the share of wages replaced by a paid leave program matters for participation, especially for the least-advantaged caregivers:

Evidence from the states shows that the wage-replacement rate can have a dramatic impact on take-up of leave for the least-advantaged caregivers. The introduction of paid leave in California nearly doubled leave-taking rates for new mothers, and those impacts were most substantial for unmarried, minority, and less-educated mothers.49 Wage replacement has also been shown to encourage more fathers to take parental leave, resulting in a more equitable division of childcare responsibilities. Importantly, evidence suggests that California’s original 55 percent replacement rate was too low for low-income households to participate.50 This indicates the need for progressive wage replacements that pay lower-income workers a high percentage of their salaries while on leave.

Job protection during paid family leave

Evidence from the states and the United Kingdom suggests that job protection and wage-replacement rates work together to promote both short- and longer-term positive outcomes:

In addition to progressive wage replacement, an effective national paid leave system must include robust job protection for those taking leave. Research shows that these two components work together to promote positive employment outcomes for mothers in both the short and long term. A 2017 study on the labor market effects of maternity leave policy in Great Britain found that wage replacement increases the probability of mothers returning to work in the months following childbirth, but expanded job protections substantially increased mothers’ employment rates in the longer term.51 By accessing paid leave with job protection, women stay connected to their prebirth jobs, thereby ensuring that mothers remain valuable to their employers and do not lose the employer-specific skills they developed prior to their leave. It is important to note that the British case examined the expansion of a maternity-leave-only policy, rather than a broader paid family and medical leave policy that would extend job protections to all categories of care leave. The impacts of broader job-protected leave may look quite different in the case of federal proposals such as the FAMILY Act, which simply extends FMLA’s broad job protections to apply to paid parental, medical, and caregiving leave.