Why employers might like paid leave programs

Paid leave, which allows workers to take time away from work for personal medical reasons or to care for family members, is increasingly popular among policymakers. In fact, presidential candidates from both major parties support the idea of paid leave, even if the mechanisms for funding and delivering paid leave differ quite a bit.

But while the idea itself is catching on, actual instances of paid leave programs in the United States are relatively rare among the states. So far, just three states have implemented comprehensive paid leave programs: California has had a program for more than a decade, with only New Jersey and Rhode Island joining the ranks relatively recently. (New York and Hawaii have more limited temporary disability insurance programs.) Looking at these states’ experiences can be instructive when thinking about what a federal policy might look like.

In a recently released report, four researchers—Ann Bartel of Columbia Business School; Maya Rossin-Slater of the University of California, Santa Barbara; Christopher Ruhm of the University of Virginia; and Jane Waldfogel of the Columbia School of Social Work—explore how the new paid leave program affects employers in Rhode Island, which in 2014 became the most recent state to implement a paid leave program. Called Temporary Caregiver Insurance, the program was an expansion of its already existing temporary disability insurance program. It gives workers in Rhode Island four weeks of paid leave and is financed by a payroll tax on employees. The payout is a certain percentage of workers’ pay, capped at $795 a week.

In short, Rhode Island decided to take a social-insurance-style approach to the program instead of one that would rely on individual employers to give their workers leave on their own. It’s like the difference between Social Security and the 401(k) system.

The researchers surveyed employers before and after the implementation of the Temporary Caregiver Insurance program and found that it really doesn’t affect the employers much, at least according to their survey responses. For the most part, employers feel pretty positive about the program: 61 percent of employers said they were either “strongly in favor” or “somewhat in favor” of it.

(The authors note their sample size isn’t particularly large, but their results are very much in line with studies of California’s much bigger program.)

Why would employers like such a program? When economists, analysts, and policymakers talk about the economic ramifications of paid leave programs, they usually talk about the potential benefits for labor force growth. A robust paid leave program might be able to boost the U.S. labor force participation rate—which has been on the decline since 2000—by allowing workers time to temporarily step back from the labor force instead of dropping out entirely.

Stronger labor force attachment also helps employers. Turnover can be quite costly for employers, with the cost of replacing a worker registering at somewhere around 20 percent of their annual salary. So it could be quite beneficial for employers if workers come back to the job after a temporary leave. Of course, the Temporary Caregiver Insurance program doesn’t require employers to administer the benefits (as they do with employer-sponsored paid leave programs), but rather leaves that to the state government. (I’m sure employers appreciate having one less HR process to run.)

To be fair, this is just the experience of one state of only three that have implemented paid leave programs. But their positive experiences, along with those of other countries with similar programs, show the large potential for the concept in the United States.

(AP Photo/Ben Margot)

January 21, 2016


Nick Bunker


Paid Leave

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