During the campaign, then candidate Trump advanced a proposal to provide six weeks of paid leave to new mothers through the Unemployment Insurance (UI) benefits program. According to reports, the administration is now considering adding new fathers based on earlier criticism. In crafting this proposal, his advisors were likely looking back to a similar plan dubbed “Baby UI,” a US Department of Labor regulation advanced by the Clinton administration and later rescinded under the Bush administration.
“Baby UI” allowed (and encouraged) states to create parental leave programs that would allow both male and female workers to collect UI benefits while caring for a new baby.
Some UI experts have argued that individual states could advance such a program without federal approval, but the idea fell out of favor due to the stress placed on the UI programs by the recession and the chilling effect of Bush’s reversal of the Clinton plan.
What are the merits of a program delivered through Unemployment Insurance? While the idea holds promise for allowing the US to finally join the rest of the developed world in providing wage supports to parents after the birth or adoption of a baby, a deeper examination of the proposed policy parameters and funding mechanisms suggests that additional work is needed to craft a national program that accomplishes key policy goals and minimizes unintended consequences.
Let’s turn to the funding mechanism first. The Trump campaign said it would pay for the estimated $2.5 billion a year cost by reducing fraud in the unemployment insurance system, which it estimated at $3.4 billion. There are three concerns about this approach: (1) reducing abuse, the extent of which is contested, is not cost neutral. It costs money to monitor and curb fraud, and deterrence efforts often do not deliver the expected revenues; (2) employers that currently provide leave benefits would likely drop coverage and require workers to use government benefits instead, which may inflate the expected costs to the state; and (3) the UI tax system is largely “experience rated,” meaning that the tax rate charged to employers depends on the utilization of benefits by their employees, which is meant to deter employers from excessive use of the program.
Leaving aside the questions about the extent of fraud (i.e., how much can be reduced and the cost of achieving such a reduction, which are debatable and well summarized in the New Yorker) and leakage from private offerings, in this post we examine the third point: employer incentives in the UI system.
The UI system contains ingrained incentives for employers based on how taxes are calculated that may have negative economic consequences for women.
The Unemployment Insurance system is currently funded through a complex payroll tax system that includes statutorily defined and interconnected federal and state components, totaling at least a combined 6% tax rate on an employer’s payroll for the first $7,000 of each worker’s wages. However, all states have a significant amount of discretion and vary their portion of the tax based on how much a particular employer’s workers use the system. Commonly referred to as “experience rating,” this means that an employer’s UI tax rate increases when more of their workers use the program. This system is in part designed to keep UI programs solvent but it also discourages employers from unnecessarily or capriciously laying workers off.
If used for a maternity leave program, however, that system would create additional disincentives for employers to provide paid leave to new mothers on their payroll or even hire pregnant women or those that are likely to become pregnant.
Such a tax penalty could result in an increase in the already relatively high levels of discrimination against pregnant workers, new mothers or women likely to become pregnant, since employing them may increase an employer’s UI tax rate and bill. Therefore, one unintended consequence of using the UI system to finance maternity leave is that it may reduce employer incentives to hire these workers in the first place, promote them or pay them fairly.
That leads to a second set of considerations related to unintended consequences. Several scholars and advocates have already summarized the problems associated with singling out mothers for these benefits and the new administration seems to be listening and considering the addition of fathers. Increasingly, millennial fathers are interested in playing equal roles in parenting. Excluding fathers from the program would not only deny men that opportunity, but also provide economic reinforcement for the assumption that only women are responsible for infant care. Workplace discrimination against pregnant workers and parents is technically illegal, but it remains common according to EEOC complaints and research conducted by the Work Life Law Center.
Unless a separate funding mechanism is put in place, the Trump administration proposal would only make this problem worse by penalizing employers when their female workers (and also potentially their male workers, if they are added) use the program.
It is also not clear how eligibility for the program would be determined. If current criteria are used, which are determined at and vary by state, the Institute for Women’s Policy Research (IWPR) has found that UI eligibility criteria often leave lower-income women out. IWPR finds that “the criteria were designed to benefit full-time workers with incomes large enough to support a family, which means that low-income and part-time workers are typically ineligible. Women are frequently disenfranchised by state eligibility criteria that fail to consider the social and economic issues that affect women’s employment patterns and their earnings.” Benefit levels also vary dramatically from state to state, generally providing only around 50% of lost wages when caps, wage credits and other criteria are combined. At 50% wage replacement, many workers would be unable to make use of the program.
In addition, the Trump proposal does not address the right of a worker to take a parental leave without losing their job or suffering other negative employment consequences such as demotion.
Such a right would be even more critical if the program increases the economic penalty for employers when female workers take leave. The federal Family and Medical Leave Act (FMLA) currently gives workers the right to take 12 weeks of unpaid leave to care for a new child, but it only applies to around 60% of workers in the U.S. A patchwork of state level unpaid leave laws provides some additional workers the right to take parental leave, but for the most part these laws (which pre-date the federal FMLA) cover a similar set of workers. Only four states (Minnesota, Maine, Oregon, and Vermont) provide a leave entitlement to additional, but not all, workers. Unfortunately, without additional protections the workers that are most economically vulnerable are the same workers that could get fired for taking a maternity leave under the Trump proposal (low-wage, younger, workers of color).
All of these issues do not necessarily diminish the potential benefits of taking advantage of the significant UI infrastructure for delivering wage replacement during parental leaves.
In fact, the three states that currently provide wage replacement to new parents (California, New Jersey, and Rhode Island) depend in varying degrees on this infrastructure, but do so while also addressing some of the unintended consequences highlighted here. Other states, like Minnesota, have looked in detail at how a state could make use of the UI program structure of revenue collection and benefit disbursement to deliver a program efficiently and are considering adoption of a similar approach. Congressional proposals, such as The FAMILY Act being reintroduced by Senator Gillibrand, would provide uniform benefits through a payroll tax and benefits system administered by the Social Security Administration. If the Trump administration proceeds down an alternative UI-based path, the research findings presented here would assist them in building upon and learning from the effective approaches already implemented in three states and planned in others.