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More analysis needed of paid family leave in SB2474 SD2

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Labor and Government Operations on March 12, 2024.
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March 12, 2024, 9:30 a.m.
Hawaii State Capitol
Conference Room 309 and Videoconference

To: House Committee on Labor & Government Operations
      Rep. Scot Z. Matayoshi, Chair
      Rep. Andrew Takuya Garrett, Vice-Chair

From: Ted Kefalas, Director of Strategic Campaigns
           Grassroot Institute of Hawaii

RE: COMMENTS ON SB2474 SD2 — RELATING TO FAMILY LEAVE

Aloha Chair Matayoshi, Vice-Chair Garrett and other Committee members,

The Grassroot Institute of Hawaii would like to offer its comments on SB2474 SD2, which would establish a family leave insurance program funded by employer and employee contributions.

It also would eliminate the exemption from the family leave law for employers with fewer than 100 employees.

The idea of being able to take paid leave from work to care for a family member is certainly appealing, but decades of data demonstrate that such programs rarely live up to their promise and may even harm those they intend to help.

It is often assumed that family leave policies will be especially helpful to female workers, as women are expected to benefit more from paid leave. However, research demonstrates that family leave programs show no benefit to female workforce participation, and may even have a negative effect.

A recent study of the long-term effects of California’s Paid Family Leave Act found that it did not help narrow the pay gap, and was instead associated with reduced employment and earnings for first-time mothers.[1]

A different study of maternity leave reform in the United Kingdom found that among highly educated workers, paid-leave programs tend to increase gender inequality, with fewer women holding management and promotion-track jobs, while lower-educated female workers were 10 percentage points less likely to receive a promotion than they were before the reforms were enacted.[2]

Nor are the benefits of paid-leave programs evenly distributed. Low-income workers are significantly less likely to take advantage of paid leave, making it little more than a government-subsidized leave program for well-paid workers.

In 2020, 18 million California workers paid into the state’s family leave program and were eligible to take advantage of its benefits. However, only 14% of workers earning less than $20,000 took paid leave, while workers earning $80,000 to $99,999 had a utilization rate four times higher than the lowest earners. Those making $100,000 or more a year utilized paid leave three times as much as low income workers.[3]

Family leave policies in San Francisco[4] and New Jersey[5] have seen similar results, with low-income families far less likely to utilize leave policies than high-income earners.

Paid-leave programs also struggle with problems of cost. It is nearly impossible to properly evaluate the financial viability of the program proposed in this bill, as the contribution requirements are left to a later determination. However, there is a real risk of underestimating the full cost of the program, which could create a burden for the state budget and taxpayers.

The AEI‐​Brookings Working Group on Paid Family Leave analyzed the proposed federal FAMILY Act — which also relies on payroll contributions — and argued that the authors of the bill had severely underestimated the costs of the paid-leave program. Depending on take-up rates, the funding mechanism might have only covered half the program’s costs.[6]

Before embarking on an ambitious paid-leave program such as the one proposed by SB2474 SD2, lawmakers should demand a strict analysis of its financial impact on the state budget and the economy as a whole to ensure that the program would not become a fiscal nightmare.

Finally, we must consider the effect that enacting this bill would have on Hawaii’s business climate.

Because the proposed program is very broad, including even businesses with only a handful of employees, it would add to the cost of doing business in our state. Employers would have to compensate for the increased costs associated with the program, which could mean fewer jobs or stagnant wages.

Support for family leave probably would go down if workers knew it would equate to higher taxes or cause them to forego a raise or promotion.

As attractive as the idea of paid leave might be, the negative tradeoffs that accompany family leave programs cannot be ignored.

Given the many questions raised by this bill, it seems clear that more analysis is needed of the effects and fiscal impact of paid family leave in Hawaii.

Thank you for the opportunity to submit our comments.

Sincerely,

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Martha J. Bailey, Tanya S. Byker, Elena Patel, et al., “The Long-Run Effects of California’s Paid Family Leave Act on Women’s Careers and Childbearing: New Evidence from a Regression Discontinuity Design and U.S. Tax Data,” National Bureau of Economic Research, October 2019.
[2] Jenna Stearns, “The Long-Run Effects of Wage Replacement and Job Protection: Evidence from Two Maternity Leave Reforms in Great Britain,”  SSRN, May 7, 2018.
[3] Kristin Schumacher, “Paid Family Leave Payments Don’t Add Up for California Workers,” California Budget and Policy Center, February 2022.
[4] Julia M. Goodman, William H. Dow and Holly Elser, “Evaluating the San Francisco Paid Parental Leave Ordinance: Employer Perspectives,” University of California at Berkeley, February 2019.
[5] Amy Dunford, “Boosting Families, Boosting the Economy: How to Improve New Jersey’s Paid Family Leave Program,” New Jersey Policy Perspective, April 2017.
[6] “Paid Family and Medical Leave: An Issue Whose Time Has Come,” AEI‐​Brookings Working Group on Paid Family Leave, May 2017.

 

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