Family and Medical Leave Act, 1993

Introduction

In 1993, the Clinton administration signed the Family and Medical Leave Act (FMLA) into law. This law stated that all employees with a minimum of 1,250 hours tenure with an employer with more than fifty workers in a seventy five mile radius be given up to 12 weeks unpaid family leave within a year without fear of being sacked. The factors that lead to such leave starts from employees illness, or serious illness of a spouse, or child or even the parents; the FMLA does not give wage replacement to worker out on leave. Accordingly, paid leave bill have so far been introduced to more than 28 states. Specifically, California introduced this bill, SB 1661, in February 2002. This paper thus analyzes the cost and benefits of paid family leave policy such as SB1661 (Bernick, 2000).      

California’s Existing Family Leave Laws Leave Laws Establishing Job Protection

In 1993, the federal Family and Medical Leave Act (FMLA) became a law and during the same period the California State Legislature amended the California Family Rights Act (CFRA) in conformity to the standards of FMLA. The above mentioned two laws command that any private sector, any state or local government worker, including some federal workers who have worked for a period of 1250 hours in the previous year must be eligible to 12 weeks of unpaid so long as the employer employs at least fifty workers with 75 miles radius (Commission of Family and Leave, 1996). This implies that employees who are covered are eligible to take 12 weeks leave of unpaid leave without the risk of being sacked (Jane, 2001).

According to the Commission on Family and Medical Leave (1996), in California, roughly 65% of employees are either covered by FMLA or CFRA. Those employees who are not usually covered are the one who have not worked enough in the last 12 months or those who work in small companies. With the passage of the flexible sick law in California in since 2001, employees with sick leave may apply the leave to care for sick members of the family as well. Under section 233of the California Labor Code, employees are eligible to use their sick leave during six months to cater for their family members.      

Leave Laws Establishing Wage Compensation

Since 1940’s, the state of California has maintained a state of disability insurance program (SDI). In this program, employers are entitled to have their workers to take part in the state disability program or rather provide analogous insurance policies to their workers. Employees are also able to receive a weekly wage ranging from 55% to 60% or up to a maximum of $490 in 2001, for a duration equivalent to the time that they are sufficiently disabled as not being able to work. The total duration of coverage is 52 weeks but there is a seven day waiting period before an eligible employee can begin to receive benefits. It is important that an employee receives a verification letter from the doctor before receiving insurance payments (Bernick, 2000). Workers who suffer from non-work related disability are usually covered. For pregnant disability workers are allowed to take up to four weeks leave before delivering and up to six weeks after delivery but additional time can be given due to birth complications. Generally, FDI is fully founded in the employee’s payroll taxes. The costs currently add up to 0.9 % of the total employee’s earnings. Roughly 12 to 15 million workers in California contribute to state insurance fund.        

Senate Bill 1661: The Paid Family Leave Bill of 2002

Senate Bill 1661, which extends SDI to cover paid family leave, was introduced into the California State Legislature on Feb. 21^st, 2002. This bill stood a chance of providing disability compensation for persons who are not capable to work due to the need of care to a sick parent, spouse, child, or for the birth, adoption, or foster replacement of new child. In other words, extends the current SDI coverage beyond the worker’s own disability to coverage of the family care giving. SB 1661 is likely to establish, within the existing SDI program, a family leave insurance program to give up to 12 weeks wage replacement benefits. However, additional benefits would also be funded by contributions of workers to the state fund. A total of fifty percent would also be paid by for by the employer while the remaining fifty percent catered for by the employee. It is vital also to note that the rules of payment and coverage are alike, as well as those for SDI. SB 1661 also extends coverage to include family leave merely (Bernick, 2000).      

Theory

Benefits to Families, Employers, and Government of Legislating Paid Family Leave

The major beneficiaries of paid family leave are the elderly parents and children. To the degree that the length of leaves and the number of leaves taken is really susceptible to the amount to be remunerated during the period employee is on leave; children and parents are likely to be the beneficiaries. Greater leave taking is likely to improve the quality of care giving, as may constructively impact health outcomes. In subsequent section, empirical evidence on medical impacts of paid family leave for families in moments when there is need would promote the person taking leave through offering them insurance (Bernick, 2000). Just like any other form of insurance, it does not only benefit people who take leave, but also give the priority of getting compensation during emergency in the family to almost all employees.

Moreover, to an extent when low income generating parents know that they can use paid family leave, having such a policy is likely to impact their decision in taking part in labor force at all. The best example of such a move can be depicted by future mother whereby she realizes that she is eligible to pay during maternity; she may opt to enter into or rather after giving birth in order to remain in the labor market. Otherwise, with no such policy the woman may decide to retire from working early or may not reenter the labor force until later years after delivering. A paid family leaves are most likely to reduce government expenditure through provision of more incentives to both persons who enter or remain in the labor force. Some of the social programs that are bound to suffer include: TANF, reenter’s assistance, Medicaid, and other related public maintenance programs (Bernick, 2000). Over the longer term, provision of incentives in order to remain in the workforce is also a tool that is likely to increase income taxes.

Employers are also likely to gain from a paid family leave policy. Some individuals may also want to offer paid family leave since they understand that their workers’ or their own estimation of value of such insurance program will be higher that the cost. Nonetheless, if only a number of companies are offering paid family, such employees are likely to attract a disproportionate number of employees who wish to take leave by providing a fringe gain; this can be in the case of an employee with a sick child or parent. In economical terms, such a problem can be referred to as “adverse selection” – which means that certain insurance policies are not going to be given by private market notwithstanding their social desirability. When there are no some government policies in place few individual employers are likely to provide family leaves. Through elimination of such adverse selection the proposed legislation is in a position to correct serious distortions in the labor market. Also, leveling the playing field it would be beneficial to only the workers who have been all along in a good family paid leave policies (Christopher, 1997).

Furthermore, a paid leave policy is likely to foster greater attachment to jobs (greater tenure), which reduces enrollment and training costs to operation managers. In case an employee is capable of taking the required family leave, he/she is less likely to relinquish. Some employees are bound to leave their primary job due to unpaid leave and thus depending on either public assistance or part time job as their income source. Nevertheless, with a paid leave policy such employees are not likely to relinquish their primary job. Through the encouragement of greater attachment to job, a paid leave policy would minimize turnover costs brought about by the employer. In the long run, job attachment or tenure typically increases productivity and wages of employee, which are benefits of paid leave policy.                    

Costs to Families, Employers, and Governments of Legislating Paid Family Leave

The principle costs of instituting a paid family leave policy in the State of California would be the direct financial costs to workers and employers. The costs solely depend on the number of people taking up paid family leave, and how long leave takes. To begin with, according to the new policy, worker taking unpaid leave to care for their families would only be eligible to partial payment. Secondly, some of these people are likely to take longer leaves in correspondence to pay. Thirdly, individual s currently using vacation or sick time in order to take leave or sick time in order to take leave and care for their families may opt for paid family policy. Each of the above possibilities is discussed in details in the research when it comes to cost of policy estimation (Jane, 1999).  

In the long run, it has never been validated in relation to who will reimburse for the compensated leave program. Worker may pay directly through contributions to the SDI fund or low wages. Employer also may finally lower wages due to their partial payment of family leave. However, the possibility of an employer to do so is very limited since this may make it less competitive in employee recruitment of workers who are not going to gain much from the paid family leave. How much, in case, wages will drop in the long run as a result of leave policy is one empirical question beyond the scope of this research paper. An increase in unemployment is the likely result due to increased labor costs, although, additional costs or small fraction of wage cost may have impact on levels of employment (Jane, 2001).

Existing Research on the Costs and Benefits of Paid Family Leave

There is a small body of empirical research in relation to the economical impacts of family leave. For instance, in 2002, the Employment Development Department (EED) of the state California carried out a cost analysis of implementation of family leave policy in the State of California. This department found that implementation of a paid family leave policy, with a wage replacement rate equivalent to SDI wage replacement rate, and coverage also to be equivalent to SDI coverage, which was roughly 0.1% of the aggregate wage bill. The study assumed that using vacation time and any other benefits for leave were not likely to quit and join the state paid family leave policy. It also assumed that hours eligibility requirements such as FMLA and CFRA, in relation to workers with less than 1,250 hours working in previous job did not qualify for the policy since SB 1661’s eligibility needs are broader. Finally in projection of the yearly take-up, the EDD study does not account for the 19 months variety used in DOL data set (Gerhard & Holton, 1999).

In a certain article linking paid family leave and labor force participation by Christopher, (178) looks at the impact of parental leave in nine Western countries. In this case he employs yearly-country data on a mean wages and employment by age accompanied by replacement ratio and the period of leave in each of the nine countries for every year between 1969 & 1993. The research found that family paid leave are in most cases used by women and thus such leaves should only be effectual to wages and labor supply of the female counterparts. It was further found that the idea of 3 to 4% is a tool that increases women employment. This research also found that women are core beneficiaries of such a program since they can be able to (develop their career and earn higher wages); companies that are (facing less turn over); and the government (who collects taxes as a result of increased contributions in the labor force).

In another article by (Steven, 2001) that discusses the impact of paid leave family leave on productivity. The authors argued that implementation of family leave led to 2.5% increase in profitability of companies. It indicated that firms with a certain level of intensity capital received a lot of money from such policies.                

Estimating Costs of Paid Family Leave in California

Methodology of Estimating Costs

The total cost of Paid Family Leave (PFL) policy is usually determined through four components: leave take-up, administrative cost, weekly benefits, and length of the leave. In estimating a leave take-up and leave length, a 2000 Department of Labor survey is used. Benefits and administrative cost data from the current SDI system as reported by EED are applied.

Take-Up Rates and Utilization of Paid Family Leave in California

Types of Leaves

Research also found that the proposed PFL legislation is likely to extend the existing SDI coverage for serious illness of family members as well as parental leave with new children. Those leave takers under PFL would exclude those taking leave for their own sickness. Through California current SDI system, these leaves are already paid. Those applying for leave in cases associated with disability or pregnancy are not likely to use PFL because such a type of leave has already covered by pregnancy disability leave (620 weeks for virginal delivery, 8 weeks for c-section), in California. Individuals taking any part of leave in caring for newborns are assumed to apply PFL (Steven, 2001). 

Existing Benefits and Substitution

In case, there is no paid family leave policy, presently employees apply various methods in payment of their leaves. Companies always allow employees to take paid leave for family medical purposes whether there is no formal policy. Typically they enable workers to use their vacation period, personal days, or sick days in receiving their pay during family medical urgent situations. Other families benefit from actual parental leave while other employers have temporary disability insurance as stated by mandates in five states including California (Gerhard, & Holton, 1999).      

Testing for Demographic Differences in California

Due to the fact that DOL survey is a national and the research cost’s estimates are for PFL in California, logical and populace dissimilarity between people working in California and people working in United States are scrutinized. In case Californian are most likely to be childbearing age, or more females as compared to those of United States as a whole, then estimates on take-up applying national data might vary from the likely take-up rate in California. For all three of the cost scenarios, a fall off is running calculating forecasts of those who take leave and those who need leave based on demographics in the DOL national survey (Gerhard, & Holton, 1999). To determine forecasts of those taking leaves and those that need leave for California, it is vital that the population variable be adjusted applying state’s averages using data collected from the present population survey. The net impact of the prospected leaves is not affected by the difference in demographics.

The variables that are talked about here are: gender, race, age, marital status, family income, educational attainment, government employment, part time status, and self-employment. For cost calculations, 26 national estimates are used. In detail, it is not due to no logical demographic differences between California and other states, but basically the net impact brought about by those differences on take-up rate for family leave is negligible (Jane, 2001).     

Length of Leave

One major method used to ascertain the impact of PFL on duration of leave taken would be focusing on those who took paid leave and those who took unpaid leave. Nonetheless, the problem with comparing leave paid and leave unpaid is that it very likely that short leaves are usually paid. Focusing on all leave takers in the DOL survey, it is fully evident that the paid leave add up to a percentage of 18% shorter than unpaid leaves or those that are partially paid. In case worker just needs few days off employers are always willing to make them use sick days or vacation in financing of the time off. Nevertheless, in case a worker knows that their leave is going to be long, they are more than willing to pay for their leaves on their own. Thus, in cases when the need for longer leaves is greater then monetary constraints are likely to lead to shorter leaves (Steven, 2001).    

Savings to Employers from Paid Family Leave

The main beneficiaries of the FPL policy are likely to be those taking the leave and those who are in need of care, both in relation to direct monetary gains and better quality of care affordable through longer leaves. But all in all, gains are likely to accrue to employers. Finding indicates considerable gains to employers through reduced turnover, accompanied by some modest gains to the state through reduced transfer payment (Woldfogel, 2001). 

Conclusion

This research has provided a synopsis of the cost and benefits imminent on SB 1661, the California State paid family leave initiative. It has also focused on the costs and benefits for those data that are extra readily obtainable. Much of the most likely benefits have not been assessed due to present data limitation. For instance, having paid family leave make console most workers and make them feel good in relation to their work conditions and this may improve the productivity of workers (Jane, 1998).      

Health benefits to children, the elderly, and spouses are probably the most important benefits of paid family leave. Past research suggests that there have been substantial reductions in post-neonatal infant mortality as a result of paid maternity leave in Europe. Also, past studies found substantial increases in female employment as a result of paid maternity leave in European countries. Entry into the labor market would benefit the women who decide to work (and the families who need their income), governments who become able to collect more tax revenue, and employers who face higher levels of demand for their products (Jane, 1999). 

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