Opinion

Democrats' agenda is decimated. And that's okay.

The upside of losing parental leave from the Build Back Better plan

Democrats have abandoned plans to include a national paid leave program in their social spending and climate bill. Even a skimpier version of the proposal — reduced to four weeks of leave from the original proposal's 12 weeks — didn't make the $1.75 trillion "framework" announced by President Biden on Thursday.

That must sting for the policy's supporters, especially given that paid family and medical leave was a cornerstone of the Biden agenda from the very start. Still, the idea's demise is probably for the best.

Democrats surely don't want to hear this right now, or maybe ever. Paid leave, mandated by Washington and funded by new taxes on rich people and large companies, seems like an obviously good thing when so many families today are dual-earning or single-parent households. Even putting aside the income-replacement aspect of the program, there's evidence that parental leave can improve the health outcomes of children and mothers. What's more, America is a global outlier in not offering the benefit. Can every other rich country be wrong?

Before answering that question, it's important to understand the downsides of paid parental leave. Even the best ideas have trade-offs, and so, too, with paid leave. For starters, one of the most mentioned benefits is the effect on female economic outcomes, particularly job market participation. Yet a 2017 literature review by economists Claudia Olivetti and Barbara Petrongolo, "The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High-Income Countries," finds "estimates of the impact of parental leave entitlement on female labor market outcomes range from negligible to weakly positive." So that upside is not so clear as we might assume.

But that's for other countries. Maybe things would work differently in America. Maybe better, maybe worse. Turns out, we have some evidence it might well be the latter.

In 2002, California became the first state to provide parents six weeks of partially paid leave to bond with a newborn or newly adopted child or to provide care to a seriously ill family member. The law became effective in 2004. When combined with the state's temporary disability benefits program, the new paid leave benefit brought the total amount of partial paid leave for a normal birth to 16 weeks. Keep in mind, of course, this is still far less than in other rich countries, where the average duration of parental leave is 57 weeks and at least partially paid in every case. 

Although other states have since passed their own paid leave laws, California is the only long-term test case we have of the labor market effects of the benefit in the United States. Those are the subject of a 2019 paper, "The Long-Term Effects of California's 2004 Paid Family Leave Act on Women's Careers: Evidence from U.S. Tax Data" by Martha J. Bailey, Tanya S. Byker, Elena Patel, and Shanthi Ramnath.

As the title indicates, the researchers used administrative tax data from the Internal Revenue Service to perform the study. They found that though the California benefits were modest compared to the typical policies in Europe, their "implementation led to statistically significant and economically large declines in the employment and wage earnings of new mothers. For this group, employment fell by 7 percent and annual wage earnings fell by 8 percent over a decade." Indeed, women who had access to paid leave were "no more likely to remain with their pre-birth employer than women without paid leave access, both in the short and long run." This finding was contrary to predictions made before the proposal took effect.

Specifically, the paper's estimates imply that the annual wage earnings of new moms taking advantage of the benefit were $1,600 to $2,600 lower in the short term and $2,500 to $3,700 lower in the long run. Now maybe those amounts don't seem incredibly large given the plan has been in effect for over a decade. But consider that it's lower-income workers who would suffer most: They're much less likely to currently have paid leave than workers with higher incomes, three fourths of whom already have the benefit. Maybe every other rich country is wrong.

It's also worth mentioning the cost of the original, 12-week version of the Biden plan benefit: an estimated $225 billion over the next decade. Not only is that price likely to go up as advocates push for longer and more generous benefits, but the Biden plan would also have created a brand new entitlement at a time when existing programs such as Medicare and Social Security face serious long-term budgetary shortfalls. And many of the tax hike ideas currently being discussed were supposed to eventually pay for existing entitlements, not new a one.

So perhaps the failure of Biden's paid leave proposal provided a moment to reflect on what we're really trying to accomplish. One goal most policymakers might agree on is helping the working poor save money for a new baby and beyond. There are still significant ways to do that in the Biden plan, namely by extending the recent expansion in the Child Tax Credit and Earned Income Tax Credit (not to mention the child care subsidies).

For downbeat Democrats, that's a pretty good consolation prize.

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