Affordable paid family leave policy for california's working families

An Affordable Paid Family Leave Policy for California’s Working Families A Report for the California Budget Project

UCLA School of Public Policy and Social Research Professor Eric Patashnik, Advisor

Prepared By: Lisa M. Evans Gretchen L. Henkle

March 23, 2001

Jennifer A. Colamonico

An Affordable Family Leave Policy for California’s Working Families A Report for The California Budget Project

Prepared By:

Lisa M. Evans Gretchen L. Henkle Jennifer A. Colamonico

Submitted: March 23, 2000

UCLA School of Public Policy and Social Research

Acknow ledgements

We would like to acknowledge the following individuals and organizations for their support and advice throughout our research process:

! Professor Eric Patashnik, Professor Arleen Leibowitz, and the participants in the UCLA SPPSR 2001 Social Insurance APP Seminar ! Jean Ross and the California Budget Project ! University of California Institute for Labor and Employment ! Maurice Emsellem, National Employment Law Project ! Greg Williams, State of New Jersey, Legislative Analyst Office ! Vicky Lovell, Institute for Women’s Policy Research ! Don Schaffer, California Employment Development Department ! Rona Sherriff, California Senate Office of Research ! Netsy Firestein, UC Berkeley Institute for Industrial Relations ! Joannie Cheng, Employment Law Center

Table of Contents Page Executive Summary

E-1

Introduction

1

Policy Context

3

Family And Medical Leave Act

3

California Family Rights Act

3

Assessing the Impact of FMLA/CFRA

3

California Sick Leave Regulations

5

Social Insurance – A Potential Solution for Working Families

6

Maternity Leave Policies

7

The Need For Paid Family Leave In California

8

Women Are A Growing Portion of the Workforce

8

Increasing Dependency Ratios

10

“Family Friendly” Benefits Are Limited

11

There Is A Limited Private Market for Urgent Caregiving

13

The Benefits of Paid Family Leave

15

Benefits To Workers

15

Benefits To Dependents

17

Costs and Benefits To Employers

18

Paid Family Leave Efforts Across The Nation

21

California Policy Options

23

California’s Future Without Paid Family Leave Insurance

23

Expand State Disability Insurance

24

Expand Unemployment Insurance

29

Employer Mandate

33

Evaluating the Policy Alternatives

37

Comparing Criteria

37

General Conclusions

41

Areas for Future Research

43

Endnotes

45

Appendices 1. California Family Rights Act

A-1

2. 2001 State Legislation for Paid Family Leave

A-2.1

3. Description of Projections and Cost Estimations

A-3.1

4. SDI Take Up Rates

A-4

5. UI Take Up Rates

A-5

6. SDI and UI Cost Estimates

A-6

7. Calculating Percent of Longest Leave Taken for New Claims

A-7

8. EDD Steps to Calculate the Number of New Claims

A-8

Charts Chart 1: Percent of US Women in the Workforce, 1950-2000

8

Chart 2: Ratio of Workers to Dependents

11

Chart 3: Incidence of personal leave, family leave, and sick leave benefits offered by employers (% of private sector employees) by employee employment status, size of company, and employee job type Chart 4: Utility Curves of Work-Leisure Balance With Changing Preferences for Family Leave Needs – Paid Family Leave Changes Budget Constraint to Maximize Utility Chart 5: Key Provisions of SDI

13

24

Chart 6: Key Provisions of UI

29

Chart 7: Comparing the Policy Alternatives According to Major Criteria

37

16

Executive Summary An increased number of California’s workers are playing the dual role of wage earner and caregiver. Yet many working families have no income protection in the event that they need to temporarily leave work to attend to an ill spouse, parent, or child, a newborn, or themselves.

Employers’ response to the need for family leave has been inadequate, with fewer than 2/3rds of employers offering any paid sick leave, and a mere 2 percent of all employees receiving employer-provided family leave benefits. Due to the failure of the private sector to adequately address the increase in demands on working caregivers, state and federal social policies have attempted to address the problem through the federal Family and Medical Leave Act (FMLA) and the California Family Rights Act (CFRA). These policies fall short of meeting the needs of workers in two ways: 1) they fail to cover the entire workforce, and 2) they do not provide wage replacement during the leave period.

The majority of our workforce is involved in family caregiving to a child or an older adult, with many more workers anticipating these demands in the near future. ! 412,000 workers in California need family or medical leave but are unable to take it under current policy conditions. ! 2/3rds of children under the age of 6 have both parents in the labor force. ! Three-fourths of employed mothers with newborns and one-third of those with a one-month old child are at work. ! Approximately 64 percent of elder caregivers are working, while another 17 percent must leave the workforce altogether to provide caregiving. ! The dependency ratio will more than double over the next 30 years, when there will be nearly one dependent for every working age adult. ! In a survey of California state employees, fifty percent expect to be responsible for an adult dependent within the next five years.

In light of the high rate of family caregiving among workers, support for paid family leave is strong. Four out of every five Americans support paid parental leave, and just as many report needing more time off or schedule flexibility to meet their caregiving needs. To address the inadequacies of the current system, California could create a social insurance program that complements and improves existing family leave policies.

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Executive Summary: An Affordable Paid Family Leave Policy for California’s Working Families

California has many options in how to provide California workers with a paid family leave program. The most likely choices include an expansion of California’s State Disability Insurance System, expansion of the Unemployment Insurance system, or the creation of an employer mandate. We analyzed each of these options according to their effect on projected take up rates, coverage, and costs of paid family leave. We amended the methodology applied by the Employment Development Department in its June 2000 cost analysis report of paid family leave through SDI to project the usage and costs of expanded SDI and UI benefits.

According to our proposal, nearly twice as many workers would receive paid family leave benefits than they would through the EDD’s proposal because we did not disqualify workers from benefit eligibility who fail to meet the work history requirements defined by unpaid state and federal policies. Expanding SDI would result in 325,389 new claims, while expanding UI would result in 319,496 new claims for paid family leave reasons. Additionally, our costs are substantially different from those calculated by the EDD due to our use of actual leave durations reported in the 2000 Department of Labor FMLA national survey, rather than the EDD’s mean leave duration of 6 weeks. Estimated costs under SDI expansion are $198 - $230 million, while estimated costs under UI expansion are $97.4 – $116.5 million. Costs and claims for an employer mandate are difficult to estimate given the large range of program designs.

We conclude that paid family leave can be made more affordable and available if provided for through an insurance program that already covers a large percentage of the workers.

However, the effectiveness and efficiency of such a program depends on how it is delivered. We compared our policy options along six major criteria to determine which program would have the most positive impact for workers, employers, and government relative to associated costs. We conclude that SDI exceeds the other alternatives on all criterion, and we recommend that a paid family leave benefit be provided for through SDI, as it would be in the best interests of California workers and employers.

This report hopes to spark a policy debate to craft meaningful paid family leave legislation. To that end, California advocates need to collect better state-specific workforce data to determine both the need and support for paid family leave to help persuade legislators to take up this cause.

Page E2

Introduction The makeup of America’s workforce has changed dramatically during the last century, as more and more women have entered the labor force. Growing numbers of families have both parents working, and the increased number of single-parent families means that more workers are playing the dual role of caregiver and wage earner. Families are increasingly dependent on the salary of more than one breadwinner.

These changes are affecting the ability of families to take care of loved ones. A majority of older adults rely on a family member to provide care, while a majority of young children do not have a caretaker at home because both parents are in the workforce. Juggling the need to care for our families while also trying to support them economically has become more of a struggle than ever before.

In response to the growing tension between work-life and home-life, President Clinton signed into law the 1993 Family and Medical Leave Act (FMLA). This act provides job security for workers in large firms who need to take leave to care for a family or personal health crisis. A 1996 report on the effects of family leave stated that while the law had helped some workers meet the demands of caregiving, the lack of wage replacement to accompany the leave was a significant barrier to workers’ ability to use FMLA.

President Clinton responded with an

Executive Order for the Department of Labor to amend the regulations of the Unemployment Compensation code. He urged states to use the amended regulations as an opportunity to expand their unemployment compensation programs to provide wage replacement for parents who need to take leave for the birth, adoption or foster care placement of a new child. Although numerous states have proposed paid leave policies over the years, this move sparked a renewed interest in moving family leave beyond the level of social policy and into the domain of true social insurance.

Currently, a mere two percent of American employees has access to a paid leave benefit through an employer.1 Meanwhile, surveys reveal that a paid leave policy has never been more needed. Four out of every five Americans support paid parental leave. Eightyfive percent favor paid leave to care for a new child or seriously ill family member.2 A recent needs assessment conducted among California state employees revealed broad agreement that

An Affordable Family Leave Policy for California’s Working Families

family friendly policies are needed to help balance the demands of work life and family responsibilities. The two top needs reported by state employees are time off for family member illness (83 percent) and flexibility in work hours (70 percent). Within the next five years, 50 percent of these workers expect to be responsible for an adult dependent, and 74 percent report that they have problems with dependent care expenses.3 These reports indicate that workers need a social insurance program that provides income security for family and medical leave reasons.

In this report we will explore the issue of paid family leave for California’s workforce.

The report will: ! Assess the current social policy and social insurance context for family or medical leave; ! Assess the need for paid leave; ! Calculate the benefits and costs of such a program; ! Consider the alternatives to providing a paid leave program; and ! Evaluate these alternatives with respect to the objectives of a paid leave program.

All families face the risk of a serious and often unexpected event that requires immediate caregiving. Workers need supports that allow them to take time off of work to tend to these events. Paid leave is a common-sense solution to a growing problem faced by American families and the issue is no less serious in California. Thus, the topic merits serious consideration as a means of providing relief to working families, both today and in the future.

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An Affordable Family Leave Policy for California’s Working Families

Policy Context Current family leave policies do not meet the needs of all workers. Among the few solutions that government provides to mitigate the tensions between work and family life are the Family and Medical Leave Act, the California Family Rights Act, and policies around employerprovided sick leave. While these social policies are an important first step in supporting working families in the event of an urgent family care need, they are inadequate. Current policies fail to cover the entire workforce and do not provide wage replacement.

Family and Medical Leave Act In 1993, Congress passed the Family and Medical Leave Act (FMLA). This law protects the jobs of employees in larger businesses (50 or more employees) while they are on leave from the workplace to attend to specified family caregiving responsibilities or to their own health.

FMLA does not provide wage replacement during these personal and medical need departures.

Workers eligible for FMLA can take up to 12 weeks of unpaid leave to care for a newborn, newly adopted, or newly placed foster child; a child, spouse or parent who has a serious health condition; or the employee’s own serious health condition, including maternity-related disability and prenatal care.4 California Family Rights Act Also in 1993, California legislators passed the California Family Rights Act (CFRA), which was structured to conform to FMLA. The California Department of Fair Employment and Housing enforces CFRA. Since its passage, various legislative attempts have been made to expand CFRA coverage and benefits. These efforts have been largely unsuccessful, and the pressure is mounting to take legislative steps to make CFRA work better for working families.

Because CFRA is California’s version of the federal law, FMLA and CFRA will often be referred to interchangeably throughout this report.

Assessing the Impact of FMLA/CFRA Since the passage of FMLA, two nationally representative surveys have been conducted to assess the usage of family leave as well as the effects of FMLA. These reports, released in 1996 and 2000 and funded by the U.S. Department of Labor, provide the most credible proxy for

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An Affordable Family Leave Policy for California’s Working Families

the experience of individual states, and what states can expect when considering expansion of leave policies.5 Both reports concluded that FMLA is working for some of America’s workers, but not all, and recommended that wage replacement for the leave period be provided so that all working Americans can access family leave. Both of these studies surveyed employers and employees to determine how family leave had been utilized, by whom, and for what family or medical reasons. The 2000 Department of Labor study (2000 DOL Report) also asked about the duration of leaves, the effect they had on workers’ ability to give care, and employers’ experience in providing these leave benefits. This report will rely on results of the 2000 DOL Report to determine the need for a paid leave policy for California’s workforce.

CFRA does not cover all California workers.

Only five percent of California

establishments employs 50 or more people, and only 63 percent of the California workforce is covered by CFRA.6 In addition to employer size-based eligibility, employees must also meet work history requirements of a minimum of one year and 1,250 hours of work for the leaveproviding employer. According to the 2000 DOL Report, at any given time approximately 80.5 percent of the covered workforce meets work history requirements. Applying this figure to the California workforce that is CFRA-covered, an estimated 50.4 percent of the state’s workforce is CFRA covered and eligible.

More than 400,000 California workers need leave but are unable to take it.7 Nearly one-fifth of workers needed to take leave for a family or medical reason within the most recent 18-month period, according to the 2000 DOL Report. Of these workers, 16.5 percent actually took the leave, while another 2.4 percent of workers needed leave but did not take it (“leave needers”). This would mean that approximately 2.8 million workers needed family or medical leave in the last 18 months.

The most common reason for leave needers8 not to take leave is that they cannot afford it. Nearly 78 percent of leave needers report this as the reason they did not take leave.

One-third of workers who took leave received no pay during their time off of work. Unpaid leave takers used a variety of solutions to cover costs and losses associated with the leave periods. Survey respondents reported that they: used their savings earmarked for the situation (47 percent); borrowed money (29 percent); cut their leave short (37 percent); put off paying bills (38.5 percent); or went on public assistance (8.7 percent) because of the unpaid family or

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An Affordable Family Leave Policy for California’s Working Families

medical leave period. Clearly, many workers face financial losses and hardship when attempting to meet their medical and family caregiving needs.

While some of the family leave needs of working caregivers are addressed by CFRA, more than one half of the workforce must choose between meeting their caregiving demands and temporarily giving up most or all of their income. One half of workers still do not have job protection, and one third receive no pay. According to the 2000 DOL Report, 34 percent of workers who take leave receive no pay during their leave, less than one-fifth (18 percent) receive partial pay, and less than one half (48 percent) receive full pay. The limited level of wage replacement may explain why the 2000 DOL Report shows the median FMLA leave is only ten days.

Finally, certain groups of workers are less likely to benefit from CFRA. Workers who take unpaid leave and those who need leave but could not afford to take it are typically young, single (often with children), with low education and low-income. Employees who receive pay during family leave are more likely to be higher paid, more educated, and have specific skills that make them harder to replace. Thus, CFRA does not provide economic support to families who must leave the workforce for an urgent family or medical care need. CFRA could be made more effective if coupled with social insurance.

California Sick Leave Regulations California legislators recently passed legislation that may make family leave more affordable for some employees. AB 109 helps to close some of the gaps in family leave policies by allowing employees who have paid sick leave benefits to use half of these benefits to attend to the illness of a child, parent, or spouse. While this law gives those with paid sick leave benefits a means for receiving pay during such a leave, fewer than 2/3rds of all employers offer any type of paid sick leave. Additionally, sick leave only covers very short time periods. The average number of days of paid sick leave per year (for businesses with 100 or more employees) ranges from 11 days for an employee after one year of service to 21 days for an employee who has been with the organization 25 years or more.9 The impact of changes in sick-leave policy is also limited by considerable differences in who is likely to have paid sick leave benefits: •

93 percent of professional workers versus 44 percent of production workers

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An Affordable Family Leave Policy for California’s Working Families

•

77 percent of white parents versus 69 percent of nonwhite parents

•

80 percent of working mothers with incomes below the poverty line receive less than one week of paid sick leave, if any, versus almost 50 percent of mothers with higher incomes.10

Thus, although this mandate from the California legislature has likely helped some employees in meeting caregiving demands, it disproportionately assists certain groups of workers.

Social Insurance – A Potential Solution for Working Families Social insurance programs can resolve the financial inadequacies of existing social policies intended to provide working caregivers with family leave. Social insurance provides income security for a set of common risks that increase or decrease depending on the changing backdrop of general social, economic, and demographic developments.11 The most commonly known social insurance programs in the U.S. are Social Security, Worker’s Compensation, Unemployment Insurance, and Disability Insurance. There are two conditions that must be met in order for any such program to remain effective and viable: # Wage replacement must be set at a level that minimizes moral hazard, so that a beneficiary has more of an incentive to work than to receive the benefits. # The risk of adverse selection must be minimized by structuring the insurance program so that beneficiaries paying into the fund includes a broad pool of contributors, and is not limited to those most likely to experience the risk insured event.

When the insured risk events have a low probability and potentially high cost, like that seen in the utilization of family or medical leave, a government provided insurance benefit is most appropriate. Employer based social insurance arrangements are increasingly problematic in today’s capital market, which is often more responsive to investors’ interests and company profits than it is to worker well-being.12 For these reasons the private market has not responded adequately to the problems of family leave. As long as these trends continue, government action will be the preferred policy option for providing California’s working families with a family leave social insurance program.

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Maternity Leave Policies California’s coverage of pregnancy leave as an insured medical event is the only leave reason as defined under FMLA/CFRA for which we have a social insurance program. Since 1976, the State Disability Insurance program has provided partially paid pregnancy leave through its employee-financed state benefit fund. The federal Pregnancy Discrimination Act mandates that pregnancy is treated the same as any other disability and prohibits pregnancyrelated discrimination. Due to this coverage specific to the state of California, the CFRA differs from the FMLA on this one point: workers may take additional leave once they have exhausted SDI maternity leave for the purposes of bonding with a new baby. This social insurance program demonstrates how social policy and social insurance can complement one other and meet the needs of the changing labor force.

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An Affordable Family Leave Policy for California’s Working Families

The Need for Paid Family Leave in California The combined effects of changing workforce participation, household income, and population have made it increasingly important for the labor force to be covered by a family leave insurance program. A 1997 study of work and family life found that certain workforce groups are more likely to have caregiving responsibilities and to have their working life adversely affected by these responsibilities.13 Over 15 percent of men and women surveyed by the National Survey of the Changing Workforce (NSCW) provide care to both a dependent child and an adult. According to the same report, 46 percent of wage and salaried workers have children younger than 18. Approximately one-fifth of these working parents are single parents, and thus are the sole providers in the home.14 These trends have been growing and will continue to grow as women continue to have a greater presence in the workforce and the ratio of dependents to workers continues to increase. The reality is that most workers are also caregivers. Additionally, today’s families are increasingly dependent on two incomes, making an unpaid temporary departure from the workplace unaffordable.

Women Are A Growing Portion of the Workforce Women’s increasing presence in the workforce has greatly impacted family caregiving patterns and family income trends.

In

spite of the fact that women are

Chart 1: Percent of US Women in Workforce, 1950 - 2000

more likely to work, the majority of caregivers are still women.

About 58 percent of all women in

80.0% 60.0% 40.0%

California (and 60 percent of

20.0%

women in the US) are working.

0.0%

In California 63 percent of parttime workers are women while 37

34.0%

1950

38.2%

1960

43.4%

1970

51.5%

1980

57.3% 60.2%

1990

2000

Source: Bureau of Labor Statistics, US Department of Labor.

percent are men.15 Women are more likely to take part-time work so that they can meet the demands of household maintenance and childcare.

Increasingly two-parent families rely on the income of both the husband and wife to make ends meet, leaving fewer children with a parent at home. Approximately 2/3 of U.S.

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An Affordable Family Leave Policy for California’s Working Families

children did not have a full-time caregiver in 1998.16 Fifty-three percent of California children under the age of 6 had both parents (or one, if in a single-parent family) in the labor force in 1990. By 1996, that number rose to 66 percent.17 At the same time the NSCW reported that 25 percent of the workforce surveyed had cared for an elder at some point in the year prior to the study, and that more than 1/3rd of these workers reduced their hours or took time off in order to provide care. In 1990 over 67 percent of the over-65 cohort lived with families.

The growing reliance on women’s income explains, in large part, the dramatic increase in the number of hours that families are working. The average family now works 83 weeks a year, up from 68 weeks in 1969. The expansion in hours and weeks worked has occurred throughout the income distribution, with the greatest increases occurring among middle-income and lower-educated families. In the last decade, the typical middle-income married-couple family worked four and a half full-time weeks (or 182 hours) more than a similar family worked in 1989.18 In spite of these additional hours at work of both men and women, families are experiencing increased economic strain. Debt levels reached a historic high in 1999 and the share of households experiencing real economic hardship has increased substantially. Personal bankruptcy rates also reached historically high levels at the end of the 1990s.19 As the value of wages decreases and the cost of living in California increases, many families struggle to survive.

The traditional economic tradeoff of work and leisure is more complicated when household production is considered, including caregiving and other duties that are part of maintaining a family. Household production is not priced in the market, and when one or both parents perform it, there is no wage paid.

Therefore, in the traditional economic model,

household production comes out of leisure time, thus reducing the real leisure afforded to most working parents, especially women. Women are more likely to give up leisure time to care for others, therefore working women have even less leisure and work far more hours.20 According to the 1997 National Study of the Changing Workforce, the amount of time working mothers spend with their children has remained stable over the last 20 years, despite the concurrent rise in workforce participation. Although employed fathers are spending more time with their children today than they did 20 years ago, they still spend less time during the week with their children than do working mothers (2.3 hours/day versus 3.2 hours/day).21

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An Affordable Family Leave Policy for California’s Working Families

Women frequently make workplace accommodations to respond to family caregiving demands that affect a family’s economic stability. Although families that are dependent on dual wage earners suffer when women lose income due to caregiving needs, women’s careers are additionally impacted by the leave, even with FMLA protection. There is already a wage gap between men and women workers, and therefore, wives are more likely to take a part-time job to meet the needs of the family than are their husbands. Women’s job seniority, and accompanying increases in pay, are compromised because they are more often called upon to care for children, the ailing, and the aging. If women choose conventional part-time jobs to accommodate these demands, they may be limited to jobs that pay poorly, provide few benefits, and offer few new skills to be acquired on the job.22 So long as women perform the majority of caregiving in families, they will disproportionately suffer in their career advancement, which ultimately affects the economic well-being of the entire family.

Low-income families in particular are affected by these trends. Welfare used to be the paid family leave benefit for working poor families. However, under the new “work-first” philosophy of welfare reform, one must meet job participation requirements in order to receive welfare benefits. National surveys of family leave usage indicate that low-income workers are far less likely to receive benefits and to work for employers who are covered by CFRA. Yet it is unlikely that these families have any savings that would protect them against income or job loss.

These workers are now even less able to meet caregiving needs of themselves or their families, and there is no longer a strong safety net to help them through such times. Any paid family leave program has to carefully weigh the disproportionate burden on poor workers and work hard to ensure that this group can access and afford to use the benefits provided.

Increasing Dependency Ratios As the demographics of California change, the absence of a paid family leave benefit will become even more devastating to working families. The dependency ratio – the number of elder and child dependents per working age adults – will more than double over the next 30 years, when there will be nearly one dependent for every working age adult.23 As a result, the frequency and intensity of caregiving demands among the working population will necessarily rise.

Until recently, the increased workforce participation of women has been

somewhat manageable because the ratio of dependents to workers was either declining or stable.

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An Affordable Family Leave Policy for California’s Working Families

However this trend has reversed itself. The population that needs caregiving is rising at a faster rate than the workers who are Chart 2: Ratio of Workers to Dependents

providing

40000000

their

care.

The

responsibility that the younger

30000000 Workers

cohort will carry in housing and

Dependents

10000000

caring for the aging will only

0

become more burdensome as the

20000000

1990 2000 2010 2020 2030 2040

Source: California Department of Finance

responsibility both grows and concentrates among fewer people

of caregiving age. Never before has this country been faced with such a challenge in balancing work and family. Caregivers to older adults spend an average of 18 hours a week providing care.24 Approximately 64 percent of elder caregivers are working, 52 percent full-time, and 12 percent part-time. For some workers, however, the demands of caregiving are too great to balance with work, and a full 17 percent of elder caregivers leave the workforce altogether to provide care. This adversely affects the family’s financial well-being, reduces their buying power, and lowers the worker’s income tax revenues.

“Family-Friendly” Employee Benefits Are Limited Only two percent of employees have any type of employer-provided paid family leave benefit. Increasingly, employers are offering “family-friendly” benefits in an attempt to respond to the increased number of women in the workforce and the increased caregiving demands of both male and female workers. Examples of these benefits include flexible work options, longer maternity leaves, paternity leaves, and leaves for adoptive parents.

Few

employees receive these benefits, and whether or not they are provided depends upon the type of industry, company size, the proportion of women and minorities in executive positions.

Many employers attempt to meet the needs of their employees’ family responsibilities in informal ways. Employers have recently begun to offer referral services to help employees find resources for elder or child care, or offer flexible benefits so that employees can decide how to use their paid leave time, according to their needs.

More than one quarter of all workers have flexible work hours, allowing them to choose the times they begin and end their work days, or to take time off when needed.25 These programs

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An Affordable Family Leave Policy for California’s Working Families

allow workers to put in more time to get needed time off or simply to arrange their schedules in ways that suit their needs. Despite this rise in flexible work schedules, the Business Work-Life Study found that only 50 percent of employed parents are able to take a few days off to care for sick child without losing pay, vacation time, or fabricating a reason to take time off.26 American workers make substantial trade-offs in order to gain flexibility in their work schedules. American families are working as much as 50+ hours per week in exchange for workplace flexibility.27 Apart from taking on more hours, most workers must be willing to work part-time, be self-employed, work an evening shift, or obtain a college degree in order to acquire a job that offers schedule flexibility.

All of these solutions have significant costs

associated with them, including reduced earnings and job seniority.

Workers who gain

flexibility in their hours may also experience instability or unpredictability of the work schedule.28 Thus, the current ways in which employers address the needs of their workforce may not help workers dealing with a family crisis.

Employers can help employees in their work-life balance by electing to offer Dependent Care Assistance Plans, but these are underutilized and disproportionately benefit higher-income families. The Economic Recovery Act of 1981 provides tax incentives for employers to provide or pay for dependent care (care of child under 13, or a physically or mentally incapacitated child or spouse) up to a maximum of $5,000. The voluntary nature of the program is a likely reason for its underutilization, as the National Research Council found that the incentives offered to employers do not appear to play major role in their decisions to provide these services.29 In spite of the Family Medical and Leave Act and the subsequent increase in use of unpaid leave, there has been no increase in employers offering paid leave – in fact it has decreased. In 1988, 24 percent of workers were offered paid personal leave, dropping to 21 percent in 1993. These numbers are continuing to decrease.30 Certain groups of employees are more likely to receive family friendly benefits.

Establishments with fewer than 100 employees are consistently less likely to offer benefits than larger organizations. Hourly workers and part-time workers are less likely to receive many forms of assistance-paid family leave.31 Chart 3 demonstrates the discrepancies in who is receiving the employer-provided benefits that could help a worker balance work and family responsibilities. A smaller proportion of part-time employees, workers in small establishments,

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An Affordable Family Leave Policy for California’s Working Families

and those in blue-collar or service occupations receive these types of paid benefits than do their full-time, white-collar counterparts. Thus, at the same time that employers are beginning to address family caregiving needs, there remains very little formal support in the workplace, and the proportion of employers offering such benefits has been continuously declining.

Chart 3: Percentage of Private Sector Employees with Employer Provided Paid Time Off32 Benefit

Employment Status FT

Paid Time Off: Personal leave Family leave Sick leave

17 % 2% 53 %

PT

6% 1% 13 %

Job Type

Establishment Size Large-Medium

18 % 2% 50 %

Small*

12 % 2% 40 %

Professional/Technical Clerical/Sales

23 % 3% 73 %

33 % 3% 73 %

Blue-Collar/Service

13 % 1% 38 %

* Small defined as fewer than 100 employees.

There is A Limited Private Market for Urgent Caregiving Most working parents rely on childcare and schools to watch their children during work hours. Yet, there is an inadequate market that exists for urgent caregiving, as most group childcare arrangements will not care for a sick child, let alone for a child that may require medical visits or more urgent care. The only solution to this need is for a caregiver to take time off of work, have a friend or relative care for the child, or pay a nanny to act as the surrogate parent while the child is not in day care or school. Most working families cannot afford this arrangement, and those who do may suffer individually from the feelings associated with not being with their child during the illness or injury. The level of quality caregiving needed in these crisis times would require a wage that is prohibitive for most families, and the quality of that care still may not be as good as that of someone who has a vested interest in the outcome of their care. As we have already indicated, most workers do not have benefits that permit them to take leave from work to attend to a dependents’ illness, yet the private market for caregiving fails these working caregivers as well. Parents and caregivers need options that allow them to leave work to attend to the needs of their family when such events arise.

Family caregiving is extremely cost effective and results in significant reductions in costs to government and to the overall economy. This is particularly true for elder care, where the caregiving market is a public nursing home system, financed largely through Medicaid at a very large taxpayer expense. Informal caregivers play an important role in delaying or preventing such nursing home care. In 1996 California’s expenditures for long-term care were $3.7 billion.

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Nationally, the value of unpaid caregiving is about $200 billion and represents 1/5 of nation’s total health care costs, versus $32 billion in home health care spending and $83 billion on nursing home care. Older Americans who lose independence each year incur an additional $26 billion in medical and long-term care expenses, 85 percent of which goes toward the initial costs of home care and/or transition to a nursing home.33 Nursing home quality of care is beyond the scope of this report, however it is relevant to question whether non-family caregiving slows the emotional and physical healing of a dependent that is away from his or her family while recovering from illness or injury.

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The Benefits of Paid Family Leave The economic stability of a family can be devastated because of a family or medical leave crisis if it takes the income earner out of the workforce without any wage insurance.

Research on paid family leave policies find that their potential benefits are substantial, and accrue to caregivers, dependents and even employers.

For families, the benefits promote

workforce attachment and reduce economic losses during job departure during specified family and medical events. Employers benefit from improved loyalty and increased productivity both before and after leave taking. Society benefits from an increase in consumer revenues due to wage replacement, reduced enrollment in public assistance, reduced costs for public and private care that is provided in the absence of a family caregiver, and improved health outcomes both for the ill and the surrounding community. As an increasing proportion of California workers is responsible for dependent children and adults, a paid family leave policy will help financially stabilize families when workers must leave the workforce temporarily to tend to a family crisis.

Most economic analysis of caregiving has been done based on family demands for childcare. Although childcare is an ongoing demand of working families while paid family leave is for short-term crisis situations, this research can offer some insight into the paid family leave debate. Families make decisions about how to allocate their time between market participation and home production, in part, by comparing the value of their time in each part of the market. A worker’s utility curve between market production and home production/leisure is based on the wage earned in the market and the value of the time spent away from the market. The utility function for caregiving is comprised of the desired consumption of goods and services, leisure time, child development and dependent well-being. The willingness to pay for a caregiver is therefore dependent on the worker’s market wages and optimal income earned from those wages, the value of time with the dependent, and other quality inputs that factor into the well-being of the dependent.34 Benefits to Workers Workers benefit from paid family leave largely by the decreased burden and stress felt by caregivers that must juggle work and family needs. It is not necessarily optimal for workers to serve as full-time caregivers for their dependents, sometimes because their time in the market is

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more valuable, and sometimes because the quality of that care is less than what outsourced care can provide.35 According to the economic model, working parents have chosen their usual hours of work so as to equalize the value of the marginal hour in home production with the value of the marginal hour of work. However, if a child or other relative falls ill or is injured, this balance is upset, and the worker may want to reduce his or her hours of work – or even not work at all for a period of time. Of course, if this emergency is expected to persist, the worker may quit the job.

But in the short term, workers do not have an equal degree of choices to accommodate the emergency, both economically and in terms of their role in the labor force.36 Paid family leave would help this family maintain a comparable level of utility while they are out of the workforce attending to their caregiving needs by altering their budget constraint.

Utility is in part based on the consumption of goods and services, and a radical loss of wages would reduce the worker’s utility as well as contribute to an overall economic loss to the markets Chart 4: Utility Curves of Work-Leisure Balance With Changing Preferences for Family Leave Needs – Paid Family Leave Changes Budget Constraint to Maximize Utility

Market Goods ($)

C Original budget constraint ABC includes the base income but no wage replacement for family crises.

D E

Paid Family Leave

B

Base Income (spouse’s wages or savings – poor families and single parents may not have this)

With paid family leave, the partial wage replacement changes the budget constraint to ADEC, allowing the worker to have some income at point D, (beyond any base income) and maintain original utility.

Optimal Workforce Participation = 8 hrs.

A 0

8

In a family crisis, preferences change and worker moves to point B, at $0 wages (beyond any base income) and lower utility.

16-> hours of non-market time 0<-- hours of market time

for the goods and services no longer purchased. Chart 4 shows that partial wage replacement prevents the family from dropping to this lower utility curve and helps keep a certain level of consumption in the market. This temporary subsidy of partial wages paid for 0 hours of work would allow a parent to take the leave needed to attend to the family crisis, maintain some level of consumption and family well-being, and return to the original maximized utility point once the family crisis has passed.

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It is important to note that single parent households or very poor households with no savings may have a budget constraint that does not include any base income. The decision for these working parents to endure a temporary lack of wages due to caregiving needs is even more difficult. In the past, this family may have sought public assistance to help make ends meet in the event of an emergency caregiving need, thereby increasing cost to public programs. Using the public safety net may not be an option, however, and the current “work-first” welfare environment does make that choice less likely. This parent is then faced with two choices: she can take the time off to give the needed care, thus risking her own financial well-being in favor of the health of the sick dependent who would benefit from caregiving, or she can leave the workplace altogether, taking her taxes and consumption with her and potentially requiring much more expensive public intervention to get her family back on track.

Benefits to Dependents In the market economy, commodities are produced and consumed, but there is another economy that is concerned with the direct production and maintenance of human beings. The work in this “other” economy is more than just a means to producing and consuming commodities – though healthy human beings make more productive workers – but it is an end in itself, part of a public economy of “caring labor”.37 Much of this caring economy takes place in the household, and its success is not measured by an increase in output or a reduction of resources. Instead, it is measured through the benefits of early childhood development and overall social well-being in regard to general care.

Caregiving can be outsourced, but only so long as caregiver wages are sufficiently lower than the wages of the person paying them, otherwise the payer would choose to provide the care herself. Therefore, the private market for caregiving is dependent upon suppressed wages, which call into question the quality of the care being purchased.

Research on the effect of the availability of parental leave proves that its benefits to children are profound.

One researcher who studied parental leave and child health in 16

countries concluded that the longer the leave duration, the lower the chance of infant mortality.

Furthermore, he states “…evidence indicates that parental leave may be a cost-effective method of bettering child health and that parental time is an important input into the wellbeing of children.”38 Maternity leave, for instance, allows a mother to be at home and promotes

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the likelihood that she will breastfeed, which is known to promote developmental health and is possibly linked to enhanced cognitive development. Parental leave affects children’s health because it allows parents to spend time with their children - one of the most essential investments that can be given to children. For children, healthy development is achieved by providing newborns with a secure environment and a nurturing caregiver with whom the child can bond.

At stake is the infant’s skill development in emotional soothing, formation of social bonds, and interest in the surrounding world. Failing to provide infants with the attachment to a caregiver that will promote this development impairs their ability to achieve the next steps of cognitive and motor development. From there a causal chain of events can lead to the unrealized potential of the child.

Parental leave, especially leave taken to spend time with a newborn or newly adopted child, affects children as they grow older. Christopher Ruhm’s research indicates that maternal labor supply during the first three years of a child’s life has a small negative impact on verbal ability for 3 and 4 year olds and a substantial negative impact on reading and math scores for 5 and 6 year olds.39 Early employment in the first year of life had the most substantial negative impact. Such studies further reinforce the need for parents to be able to take leave after birth or adoption.

Costs and Benefits to Employers Research on the effects of FMLA and maternity leave provides mixed results about the potential impact of paid family leave on employers. The 2000 DOL Report found that less than half of the establishments covered by FMLA reported increased costs as a result of the Act. However only 8 percent reported cost savings, and of these, 77 percent said the savings were decreased turnover costs. The number of firms reporting cost savings in 2000 jumped considerably from 1995 and most establishments reported no effect on productivity, profitability and growth of the organization. Ninety eight percent of employees report returning to the same company after their leave, which likely plays a role in the decreased turnover costs for some establishments not to mention other benefits of employee retention.

Businesses that are not covered by FMLA often have overly negative expectations of what paid leave would entail. Nearly 64 percent of covered establishments reported that complying with the Act is at least somewhat easy, while 36.4 percent reported that it is at least

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somewhat difficult. Interestingly, larger businesses seem to have more difficulties than smaller businesses, especially in regards to administration but also productivity, profitability and worker absences. The 2000 DOL Report compared non-covered employers’ views of paid leave against the actual experiences of covered establishments. Across the board, the expected negative impact of paid leave by non-covered establishments is almost always higher than the actual impact experienced by covered establishments.

Maternity leave policies have been found to have positive effects on return to employment and work productivity at the same time that they result in an increase the utilization of leave. An estimated one-third of all new mothers take maternity leave. Three-fourths of employed mothers with newborns and one-third of those with a 1-month old child are at work.

By the fourth month these mothers are working at the same rate as mothers who have toddlers.40 Klerman & Leibowitz found that maternity leave policies increased both leave and employment, and concluded that more women took leave because their job was protected, while employment increased because women who would otherwise have quit their jobs remained employed.

We can speculate that something similar would happen in the case of paid leave for FMLA leave reasons, in that it may promote stronger workforce attachment if there is a greater likelihood that employees will return to their same employer. Leaves that maintain the employment relationship with a worker maintain the employer’s investment and reduce search and hiring costs for replacing that worker. Regardless of the family caregiving or health need, it is highly likely that those concerns will affect the worker’s ability to work at the marginal level of production during this time period. From an employer perspective, this employee is not only producing less, but being paid according to their optimal production level. Allowing the worker to take leave and return to work mitigates the stress and distraction that reduce productivity on the job. The employer would save the cost of the wages, lose the partial productivity (other than that which may be added by other employees pitching in to cover some of the work or that added by hiring temporary help), but have a greater assurance that the employee will come back sooner and at full productivity.

A study by MetLife looked at the accommodations that employees need when dealing with elder caregiving needs. The majority of those surveyed (n=55) made informal adjustments to their work schedule in order to fit in their caregiving responsibilities. All of these adjustments

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had implications for the employer with respect to worker productivity. Employees responded that 84 percent made phone calls; 69 percent arrived late/left early; 67 percent took time off during the day; but only 29 percent made up the work on evenings or weekends.41 Hence, of those taking time off work, less than 1/3rd give it back to the employer in off-hours.

While FMLA is not the “job-killer” that many feared, employers do have some very real concerns about the impact of the costs in administration, enforcement and productivity losses. The potential costs to employers must be addressed when considering a paid family leave program. There is evidence to show that some businesses have experienced challenges in administering FMLA/CFRA. The California Chamber of Commerce reports that both the complexity of the legislation and conflicts between FMLA and CFRA have resulted in numerous problems for businesses.42 Business owners have testified about the impact of FMLA before the United States House of Representatives’ Subcommittee on Oversight and Investigations, of the Committee on Education and the Workforce. In one employer’s testimony, he outlined the difficulties in complying with the complex and confusing FMLA legislation and the additional administrative costs his business has faced.43 His company of 140 employees has had to set up a separate and parallel accounting system to account for FMLA leave time. Many businesses report that they are experiencing similar challenges.

A paid family leave program should be designed in a way as to minimize the difficulties to employers as much as possible. Government must take a proactive role in providing oversight and support to both employers and employees. California’s Department of Fair Employment and Housing currently plays the role of enforcer of the FMLA/CFRA legislation, but the agency tends to be passive. It responds to calls for assistance but it does not proactively educate, enforce, and assist employers and employees. It is unavoidable that there will be a period of transition once a new workplace policy such as this is implemented, and government should play a role in smoothing the transition as best as possible. Currently, FMLA appears to be a burden on some employers who are struggling to comply with the legislation.

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Paid Family Leave Efforts Across the Nation The idea of providing paid family and medical leave for workers has been debated for decades, beginning in the 1980s and leading to the unpaid leave legislated through FMLA. There have also been recent efforts in Washington DC to expand the scope of coverage for FMLA. In January 2001, Senator Tom Daschle introduced S.18, the Right Start Act of 2001, which would expand FMLA to workers in businesses with 25 or more employees. This would result in the coverage of an additional 13 million workers and their families. It will provide protection for 71 percent of the private workforce, which is an increase of 14 percent. The bill also attempts to make family and medical leave more affordable for families through the funding of demonstration projects that test various methods for giving parents full or partial wage replacement after the birth or adoption of a child (S.18, 2001). Although the prospects for federal changes are not bright under the current political climate, members of Congress should continue to forge the debate to encourage states to experiment with options to change eligibility, coverage and benefits.

In 2000, sixteen states introduced some form of paid leave benefit legislation; only Massachusetts got a bill through the Legislature, but the Governor vetoed it.44 Numerous states are currently conducting research and developing cost estimations for new and ongoing legislation. Many states have also expanded FMLA coverage – offering longer leaves, wider eligibility requirements, and/or more expansive coverage. Current Department of Labor regulations allow states to use UI to fund leave to care for a newborn. Most states have proposed paying for family and medical leave through Temporary Disability Insurance (TDI), Unemployment Insurance (UI) or some combination of the two. The following states are worth special mention.

Washington Washington State’s Senate and House bills, introduced in January 2001, provide for job retention and five weeks of paid leave ($250/week) to care for a newborn or newly adopted child; a seriously ill spouse, child, parent, or in-law; or one's own serious medical condition.

Every worker and every employer would each pay one cent per hour worked. The bills have gathered significant support.

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New Hampshire New Hampshire also has current legislation that proposes a system similar to the structure of a Temporary Disability Insurance system. Because New Hampshire does not have TDI, this bill would establish a new disability and family leave trust fund, paid for through an employee payroll tax.

New Jersey The recent New Jersey legislation for paid family leave uses Unemployment Insurance as the funding mechanism. The bill, which is expected to pass, will make New Jersey the first state requiring employers to give up to twelve weeks of paid leave to the parents of newborns or newly adopted children.45 Minnesota Minnesota came very close to passing legislation this year that would have created a three-way cost sharing approach between employers, employees and the government.46 However, it got caught in the three-way government and died in conference committee.

Advocates have surveyed employers in Minnesota to better understand how paid leave policies would impact them.

Please see Appendix 2 for additional information on the ten states with paid family leave legislation currently under consideration in 2001.

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California Policy Options for Paid Family Leave In this section we will construct policy solutions to provide California’s workforce with a paid family leave benefits program. First we will discuss the implications of maintaining the status quo, which is represented by public policies that do little to support workers when a family or medical crisis arises. We will then examine the possibilities and implications of expanding two of our existing social insurance systems, State Disability Insurance (SDI) and Unemployment Insurance (UI).

We will also explore the possibility of a private sector

mechanism delivered through an employer mandate. Once we have outlined these various proposals and their key components, we will evaluate them according to their ability to achieve the desired outcomes of paid family leave with the greatest benefits, the fewest costs, and a sufficient level of wage replacement that meets the needs of today’s working families.

When a society fails to provide a social insurance system that sufficiently reflects the realities of its workforce, it also fails to provide its citizens with true security.47 In each of the program proposals put forth in this report, particularly those that rely on government to provide the benefit, we abide by the basic principles that social insurance experts and planners rely on.

Specifically, each program needs to be structured in a way that minimizes the inherent risks of adverse selection and moral hazard. The insured events must be clearly and specifically defined.

When these risk events have both a low probability and a high cost, as is the case with family and medical leave, the most effective program mechanism is one that pools the risk across a broad eligible population. All these factors must be part of any social insurance model in order for the program to be both meaningful to the beneficiary and viable with respect to the insurance fund’s solvency.

California’s Future Without Paid Family Leave Insurance Present trends indicate that California workers will continue to be pressed for time and money when they contemplate how to care for themselves and their families. Women were previously responsible for family caregiving needs, but now the majority of women are in the workforce supporting their families and fulfilling career goals. Birth rates are keeping steady while death rates are decreasing. The income gap is pushing more families into financial

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dependence, decreasing their ability to afford an unexpected family illness or injury.

FMLA/CFRA is a social policy that recognizes the value of family caregiving and allows some workers to take time off, if they can afford it. But the underlying problems with the current system seem to require a social insurance response to this crisis, and California’s leaders should seriously consider these options.

Expand State Disability Insurance California’s State Disability Insurance (SDI) system protects workers against income loss when they are unable to perform their regular work due to an illness or injury that is not related to their jobs. The fund is paid for entirely by employees, who pay into SDI through a payroll tax.

SDI covers approximately 70

percent of California’s workforce, with certain employment sectors ineligible for the program,

including

state

and

federal

employees and some local government employees. Most of the employees that are not covered by SDI are covered by parallel private plans.

Chart 5: Key Provisions of SDI Eligibility: Must have (a) a mental or physical illness or injury that prevents worker from performing regular or customary work, and (b) earned at least $300 in last 12-month period.

Maximum Benefit Duration: 52 weeks Wage Replacement: Weekly benefits are typically 55 percent to 60 percent of an employee’s salary and range from $50 to $490.

Contribution Rate: 0.9 percent of the first $46,327 of annual wages.

Waiting Period: First seven days of disability are unpaid.

Usage (1999-2000) Total SDI Eligible/Covered: 12,020,721 Processed Claims: 6 percent of SDI eligible Paid claims: 5 percent of SDI eligible Pregnancy: 27.1 percent of paid disability claims

Source: California Employment Development Department How An Expanded SDI Benefit Program Would Work Under this proposal, SDI benefit terms would be expanded to cover workplace leave due

to family or medical reasons. Family leave benefits would be available to all members of the workforce who pay into SDI and are eligible to receive benefits. Verification and distribution of these new benefits would be blended into SDI’s existing system, which is administered by California’s Employment Development Department.

The job protection afforded under

CFRA/FMLA would still apply for those employees who are in CFRA-covered employment and who are eligible for job protection. Those who are not CFRA-covered and eligible would receive wage replacement without job protection. Oversight responsibilities for CFRA/FMLA would likely remain with the California Department of Fair Employment and Housing. SDI administrators may choose to blend the leave verification process with that of benefit verification so that all activity is either within one department or well coordinated between the two

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Departments, to prevent replication of verification efforts. Regardless, employers and employees retain their respective responsibilities for requesting and granting leave according to the conditions set forth through CFRA/FMLA. Paying for An Expanded SDI Family Leave Benefit The SDI employee contribution rate could be raised to cover the increase in program costs due to an expansion of benefits for family or medical leave reasons. Because all employees paying into SDI would be eligible for this paid leave benefit, all of the SDI-covered workforce would experience the rate increase, not just those workers that use the fund for family or medical leave needs or those who anticipate using it. The size of this rate increase would be determined by estimating the utilization rates of these benefits and both the benefit and administrative costs of expanding the program. It would also be possible to explore other options to fund this increase, such as splitting the premium cost between employers and employees or having employers pay for it entirely. Either of these options deserves consideration in the context of the potential statutory changes to the SDI fund as well as the political consequences of employers bearing some direct costs. We explore these issues further in the section on employer mandates.

Estimating the Cost of Expanding California SDI In June 2000, the EDD released a report stating that expanding SDI to cover family and medical leave would cost workers an additional $1 for every $1,000 earned, up to $46.48 The EDD’s cost estimate report calculated projections for two beneficiary populations: the SDIcovered workforce and the CFRA-covered workforce. For both sets of calculations, employees not meeting CFRA work history requirements were excluded.

According to the EDD’s

calculations, 177,186 new claims would be filed for the year 2001 for SDI-covered workers.

There would be 211,347 new claims in 2001 if family leave benefits were accessible to California’s entire CFRA-covered workforce regardless of current SDI coverage. The EDD’s projections are larger for the CFRA population because this policy covers federal and state employees, whereas the SDI program does not.

The EDD’s estimated total cost of these new benefits ranged between $303 and $361 million for 2001. According to the EDD report, an increase in the employee contribution rate by 1/10th of one percent (0.1 percent) or $1 for each $1,000 earned, would generate the new funds necessary to expand benefits. The EDD used the average weekly SDI benefit level of $270 and

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the average SDI leave duration of 6 weeks to estimate the new costs. See Appendix 3 for an explanation of the EDD’s methodology.

An Amended Projection Building on the EDD’s work, we calculated paid family leave usage projections using a different methodology that was informed by analysts in other states who have worked on this issue. These amended calculations resulted in rather different take-up rates than those reported by the EDD, though the costs were very nearly the same as the EDD cost estimations. The cost projections for this report differ from those of the EDD in the level of detail applied and the assumptions made on what factors would affect take up rates for the new benefits and leave duration. For detailed take-up and cost calculations, please see Appendices 4 through 6. Our methodology took into account the following factors: •

Eligible beneficiaries included the entire SDI-covered workforce and were not limited to those with qualifying CFRA employment or work history.

•

Updated the projections to reflect more recent survey data (2000).

•

Used actual leave duration rather than mean leave duration.

•

Calculations reflected the rates of currently partially paid and unpaid leave takers, leaving out those who received full or more than half of their pay (rather than unpaid leave takers only).

•

Reduced projected new claims rates to reflect unpaid leave needers who would not take leave even if some pay were provided (13.2 percent of leave needers who did not take leave because they could not afford it).

•

The effect of paid benefits on extending leave takers’ duration of leave.

According to our calculations, the number of new claims for paid family or medical leave benefits would be 325,389. The estimated costs of these new benefits range from $138 million to $204 million. Adding administrative costs and adjusting for extended lengths of leave results in a total cost ranging from $199 million to $232 million (see Appendix 3 for details). In calculating additional administrative costs, we relied on the per capita administrative costs used in the EDD report. Because new benefit and program costs are lower than those projected by the EDD, we can assume that a funding solution lower than the 0.1 percent increase in the employee

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contribution rate determined by the EDD will generate the new revenues needed to provide a family leave benefit according to the provisions of this proposal.

Although our estimates of additional new claims are nearly double that of the EDD report, the range of additional costs estimated is lower than the EDD estimations. The difference in estimated new claims is primarily due to the fact that our estimates do not disqualify people if they fail to meet CFRA work requirements. The fact that our cost calculations are lower than the EDD’s regardless of the larger number of new claimants is because we included a breakdown of the different leave durations instead of using an average 6-week leave duration across all new claimants.

When we apply the EDD’s 6-week average leave duration to our number of new claims, the benefit costs alone are much larger than the EDD estimates (approximately $490 million).

This tells us that length of leave might be more important than take-up rates in properly assessing the program costs of paid family leave. Thus, any cost projections used as a basis for extending SDI benefits for family leave need to take into account leave duration to ensure greatest accuracy.

Discussion.

SDI’s existing purpose – insuring against income loss in the event that a worker is forced to leave their job due to reasons beyond their control – befits the proposed family or medical leave insurance benefit of caring for one’s own illness or injury, family illness or injury, or the arrival of a newborn. Because SDI is a classic social insurance program, beneficiaries pay relatively low premiums to insure against unlikely, highly expensive events that are beyond their control. Concerns about moral hazard or fraud are assuaged by partial wage replacement; most workers would not choose to receive only one half of their usual wage simply because it is available. Furthermore, SDI’s verification process has worked effectively to protect against fraud, especially with increased protections instituted in the past decade. Building paid family leave into the SDI structure would ensure that such a social insurance program that has proven successful in the past would continue to work effectively both for the fund and its beneficiaries.

The proposed paid family leave benefit would maximize employee well-being in providing an adequate wage replacement to help them make ends meet during their family crisis.

Workers would pay a relatively low premium for wage insurance that protects their income

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against the risk of an otherwise high cost event. The EDD’s determined benefit levels provide a replacement wage that maximizes efficiency of the workers while minimizing the moral hazard of wage replacement and not discouraging a quick return to work.

SDI-provided paid family leave benefits minimize government costs because the infrastructure is already in place. Under this proposal, new administrative costs would be insignificant in comparison to what it would cost to create an entirely new program.

Beneficiaries and/or employers would pay the benefit costs through a marginal payroll tax increase. Discussions with EDD officials indicate that this type of expansion is not considered prohibitively difficult or costly.

Costs to the employer are those associated with the loss of an employee’s productivity while the worker is on leave, the hiring of a temporary worker, or the hiring costs of replacing employees in the event that an employer does not provide job protection during the leave period.

Additionally, under CFRA/FMLA, employers are required to continue employees’ health care benefits during the leave. Alternative payment structures could also impose more direct costs on employers.

This program proposal ensures greater equity amongst beneficiaries with regard to wage insurance because this proposal allows any worker who pays into SDI to be eligible for family or medical leave benefits, and because the size of the benefit is based on a percentage of current income. This program does not, however, resolve a gap that exists between those workers who receive job protection under CFRA and those who do not.

Forty-nine percent of eligible

beneficiaries will not have job security along with their wage replacement. The absence of job security for all workers decreases the equity because employees who lack job protection may be less likely or less able to take leave if they are working for an employer who does not readily grant them leave from their job for a family or medical reason. This may be the greatest barrier to equity in delivering a family or medical leave benefit to working families through SDI. Additionally it may further reduce the projected cost of this benefit, given that fewer workers may take the benefit if their job is not protected.

Additionally, there is the consideration of those workers not covered by the SDI system.

A small percentage of California workers who are not covered by SDI insure themselves in the private disability insurance market. Current law requires private insurers to provide the same or

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similar benefits as SDI; therefore these workers would receive the same paid family leave benefit as that offered to SDI beneficiaries.

The SDI proposal does not address the remaining 30 percent of California’s workforce, largely made up of federal and state employees, who are not currently covered. State law exempts these employees from paying into SDI. Thus, they will not benefit from this expansion of SDI unless they can achieve the benefit through collective bargaining, or laws are changed to allow them to pay into SDI. Recently Governor Davis vetoed such a proposal for state and legislative employees, opting instead to address these issues at the bargaining table.

Expand Unemployment Insurance Unemployment Insurance (UI) provides wage replacement benefits to jobless workers to mitigate the financial hardship that comes with unemployment. Eighty-eight percent of California’s labor force works in employment that is UI-insured and 39 percent of that workforce is UI eligible (see Chart 6 box for eligibility requirements). The fund is paid for by employers who contribute anywhere from 0.8 percent to 5.4 percent of each employee’s earnings, up to $7,000, through a federal payroll tax. The contribution rate is based on an employer’s use of the fund, thus those with more stable employment patterns pay less into the fund than do employers whose employees frequently qualify for and receive UI benefits. Certain employment sectors are exempt from Unemployment Insurance coverage, including interstate

railroads,

the

self-employed,

some

Chart 6: Key Provisions of UI Eligibility: Jobless workers unemployed through no fault of their own who are able and available to work. Must have earned $1,300 during one quarter of the qualifying base period or $1,125 during the entire base period. Calculation of base period earnings may exclude three to seven months of most recent earnings.

government employees, and some domestic workers.

Maximum Benefit Duration: 26 weeks for every 52week period.

How An Expanded UI Benefit Program Would Work An expanded Unemployment Insurance fund

Wage Replacement: Minimum benefit is $40, maximum benefit is $230. Benefit levels are based on earnings; 1999 benefits provided 22.9 percent of average lost wages.

would provide wage replacement benefits to workers

Contribution rate: 0.8 percent to 5.4 percent of first $7,000 of employee’s earnings.

who leave the workforce for reasons that are Family or medical leave

Waiting Period: Certified unemployment begins the week UI claim is filed; the first 7 days of unemployment are unpaid.

benefits would be available to all members of the

Source: California Employment Development Department

accordant with CFRA.

workforce who are eligible for UI according to its current eligibility requirements that pertain to

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earnings and work history. Workplace displacement reasons would need to be amended to allow family or medical leave reasons to be considered ‘good cause’ for workplace departure. The only CFRA events allowable under UI would be parental leave to spend time with a new baby or adopted child due to the constraints in federal law. The verification and benefit distribution processes would be adopted by the current UI administration. Workers eligible for CFRA job protection would follow the same leave requesting procedures currently in place and employers would retain the same responsibilities that they currently hold under CFRA with regard to granting leave.

As with SDI, CFRA oversight responsibilities would not change, and UI

administrators may choose to blend the medical and benefit verification process in order to better meet the needs of both the administration and employers.

Paying for an Expanded UI Family Leave Benefit Employer contribution rates would increase to make up for new benefit costs. According to the UI funding policy, employers pay less into the fund when the balance is high, and more when the balance is low. Expansion of benefit terms would result in increased use of the fund and a lower fund balance, and therefore employers would experience a higher contribution rate in response to the lowered balance. Any other payment options, such as sharing premium costs with employees, would require more complex changes in federal law.

Estimating the Cost of Expanding UI In order to project the usage rates and costs associated with an expansion of UI for family or medical leave we applied the same methodology and assumptions that we used to estimate the costs of expanded SDI. In these estimates the eligible universe is UI-covered employment.

According to our estimates, a projected 319,496 new claims would be filed for UI family or medical leave benefits (see Appendix 5). The estimated costs for these new benefits range between $78 million and $117 million (see Appendix 6). These costs do not include projected new administrative costs associated with the expanded program.

Discussion Unemployment Insurance is intended to provide income protection in the event that a worker is separated from the workforce. Whether UI benefits can be applied to joblessness due to a CFRA-covered leave reason will depend in part on whether a leave taker’s temporary departure meets the definition of ‘involuntary unemployment’ in the California UI code.

Currently, about one-third of states provide unemployment compensation for personal

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circumstances that require an individual to leave his or her job, including many situations that qualify for coverage under FMLA.

Thus, an individual who is unemployed because of

compelling family or medical reasons may be considered involuntarily unemployed.49 Furthermore, California lawmakers have the authority to amend the terms of eligibility to include family or medical leave reasons as qualifying for benefits. However, this unemployment takes the worker out of the workforce, an event that paid family leave would in part seek to prevent.

Currently, UI eligibility is based on whether or not a claimant is prepared to accept an offer of employment while certified as unemployed and receiving benefits, which would hinder the caregiving abilities of that worker.

An individual who is receiving UI benefits for a

temporary family or medical leave reason will not be well served if it is necessary to accept a return to employment if one were offered. These conditions are contradictory, and thus the UI code would also need to be amended to allow beneficiaries who are on family or medical leave to waive out of the ‘able and available to work’ eligibility term.

Recently amended federal Department of Labor regulations allow and encourage states to use Unemployment Insurance for the purpose of funding partially paid Birth and Adoption (BAA) leave for working parents. Consequently, much of the focus on amending the UI system to provide paid leave has been limited to BAA purposes only. By limiting UI expansion to BAA purposes, California policy makers would fail to address the impending reality that caregivers to the elderly will increasingly need temporary paid work leave in the coming decades. It also fails to address the medical leave needs of workers to care for children, spouses, and parents as defined by CFRA. Additionally, family and medical leave benefits provided for through the California UI system does not maximize the well-being of leave takers because UI benefits do not provide adequate wage replacement. In fact, California’s UI wage replacement rates are the lowest in the nation, providing for 22.9 percent of average lost wages in 1999.50 Maximum benefit levels have not been increased since 1988 while the cost of living in California has soared, and legislative attempts to raise the benefit level have been unsuccessful. The rate of a beneficiary’s income replacement is dependent, in part, on their earnings prior to leave taking. Thus, workers with small earnings will receive small benefit checks, starting at a minimum of $40. Meanwhile, leave takers with middle-income or higher earnings receive increasingly smaller proportions of

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wage replacement as their income rises because the maximum benefit level is set at such a low figure. In addition to the low wage replacement rates, each beneficiary has a limited balance of UI funds that s/he can draw upon based on previous earnings. Once these funds are exhausted, the beneficiary no longer receives the income insurance payment.

This provision

disproportionately affects women, as they are more likely than men to exhaust their unemployment benefits because they are more likely to work part-time and earn lower wages than their male counterparts. Thus, family leave benefits provided for through UI will not provide an adequate amount of income replacement to support working families when the income provider takes leave from work to attend to a personal or family related crisis.

Providing a paid family or medical leave benefit through an insurance system that is employer-funded may influence whether a worker feels free to take the leave when necessary.

The costs are easily visible to employers, distinguishable by increases in their UI tax rates. It remains to be seen whether workers may be discouraged from taking leave by employers who are sensitive to the effect of this benefit on their bottom line. Employers bear the cost of funding the expansion of California’s Unemployment Insurance system to include family leave, which gives employers an incentive to closely monitor the use of paid leave benefits. Employers may experience an increase in administrative time spent monitoring their employees’ usage of the policy as they attempt to control costs.

The funding structure of UI affects the feasibility of adopting a UI-based paid family leave policy. The expansion of coverage terms will result in an increase in usage of the fund, thereby increasing employers’ contribution rates. Unless a separate contribution structure is established for the paid family leave policy in which the rate is not tied to the fund’s solvency, this increase in usage will decrease UI fund solvency and effectively raise the contribution rate for employers. A possible solution to this barrier is to establish a family leave surtax that will cover the costs of expanding UI benefits.

The eligibility terms of the Unemployment Insurance system will result in the same disproportionate availability of the benefit that we see currently. While our estimates project 319,496 new claims, low-wage and part-time workers and those with intermittent or unstable work histories will be unlikely to benefit from a paid family leave that is administered through UI. Additionally, the low wage replacement rates provided for through the UI system might still

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be inadequate to help those workers who reported that they would take the needed leave if income support were provided.

Analysts have yet to determine what level of wage replacement is sufficient to meet the needs of the entire work force, taking into account household income or family debt. Doing so, however, is essential in order to guarantee that all working families, regardless of their income or wealth, have equal access to a paid leave policy.

With the UI benefit structure currently

providing such low rates of wage replacement, it is probable that our projections of usage and costs are substantially higher than what will actually occur.

Employer Mandate An employer mandate would allow Californiaâ&#x20AC;&#x2122;s employers to find their own way to fund paid family leave and would reward those already providing it to their employees. Mandates can be attractive policies, as they can guarantee access to particular coverages, expand benefits, and enhance the quality of benefits. They also carry hidden costs, which may be attractive to a legislator who is trying to pass such a mandate, as the costs do not appear as explicit items in state or federal budgets, and unattractive to businesses that are expected to bear these costs.

How An Employer Mandate Would Work An employer mandate could be structured in a few different ways. One mechanism would require businesses to provide family leave benefits to their employees. Another type of mandate would require employers to pay for workersâ&#x20AC;&#x2122; benefit coverage by paying into an insurance fund, such as SDI. The cost of a mandate could be shared between employers and employees, or employers and government.

For example, Washington State currently has

legislation under consideration that would mandate a shared funding system. The proposed law would require employers to pay into the fund, sharing costs evenly with government while government administers the program. Further research is needed to analyze or suggest the various forms a mandate could take.

Estimating the Cost of an Employer Mandate It is difficult to accurately estimate the costs of an unfunded mandate, due to the numerous ways that it could be designed. Nonetheless, we can gain a general sense of the potential cost of a mandate to employers in benefits, productivity and administration.

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! If employers were mandated to provide a certain level of paid family leave benefits, the cost could be determined by the number of weeks taken off by employees for family leave reasons. When we assume a weekly benefit level of $250 taken for an average 6-week leave duration used by the EDD the benefit costs per leave-taking employee would average $1,500. Fewer than 2 percent of workers are estimated to take family or medical leave. Consequently, a firm with 100 workers may pay $3,000 in benefits while a 1,000-worker firm may pay $30,000, based on the average length of leave, not including administrative costs. ! We can use the calculations in the EDD report to estimate the cost to employers for providing workers with a paid family leave benefit through SDI. The EDD estimated an additional cost per person of approximately $1 for every $1,000 earned, on the first $46,500 of wages. This equates to a maximum of $46 per year, per employee. For an employer with 20 employees, the cost is $920 per year; 50 employees cost $2,300/year; and 100 employees cost $4,600/year. It is difficult to estimate the cost of premiums for a private plan for this type of benefit. However, research on health insurance coverage indicates that mandates can drive up the costs of insurance, so it may be more expensive than the $46/year.51 Discussion Economic theory indicates that mandates have certain consequences with respect to who bears the cost. Specifically, employers may pass the costs on to consumers through higher prices, to ratepayers in the form of higher rates, and to employees in the form of decreased wages or lost job opportunities.52 An employee’s annual output is valued at a certain wage (including salary and benefits) due to competition among employers for the employee’s services. If the government requires employers to pay for family leave benefits then the worker has become more expensive while the worth of his output has remained the same. For the employee to keep his job, the employer’s likely solution is to cut the salary and other benefits.53 Jonathan Gruber and Alan Krueger (1991) examined the effect of increases in the cost of workers' compensation, the oldest mandated benefit in the United States. They found that workers paid 85 cents for every one-dollar increase in workers' compensation.54 Viscusi and Moore (1987) also studied the cost of worker’s compensation and found that all were borne by workers.55 Gruber’s (1994) work on maternity leave mandates in Illinois, New Jersey, and New Page 34 of 47

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York, found that the laws affect single and married women, aged 20 to 40, who paid the full costs of the mandates (when their wages were compared to similar women in states without a mandate).56 Christopher Ruhm (1997) argues that mandates may be good for business as well as workers, in some instances. According to him, although most expenses of requiring paid absences will likely be passed on to workers, resulting in deadweight loss, there are situations where efficiency might be increased because they may reduce adverse selection.57 Companies that voluntarily offer paid family leave benefits may attract a disproportionate share of workers who need the insurance, and the company will be forced to pay lower wages. A mandate rids of the incentive for such sorting behavior. A mandate may also be justified for low-wage jobs because low-wage employees tend to be easily replaceable and there is no incentive for employers to provide such a family leave benefit.

Although economists indicate that the costs of a mandate are likely to be absorbed by workers and/or consumers, businesses do incur certain types of costs. In 1996, states and localities reported on 200 separate federal mandates involving 170 federal laws, including labor and health and safety laws. The concerns expressed included the costs, lack of flexibility, unreasonable standards, unreasonable implementation timelines, and the often overlapping and duplicative roles of the governmental agencies administering the laws.58 The administration of a mandate also concerns employers who experience increased paperwork, adherence to guidelines, fears of an audit, and the difficulty of redistributing the workload of an employee on leave.

These types of costs are difficult to quantify, y but they can adversely affect businesses.

Government could address some of these concerns by helping businesses that are disproportionately affected by a mandate. For instance, small firms that have difficulty selfinsuring, administering the benefit program, or temporarily replacing workers on leave, may be assisted through a government subsidy.59 However, if businesses that are especially challenged by a mandate receive financial or administrative assistance then government would incur these added costs. Similarly, a program that shares costs between employers and government, like Washington Stateâ&#x20AC;&#x2122;s proposal, will result in added costs to government, as will the additional administration/oversight costs for any new employer mandate.

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Overall, an employer mandate to provide California workers with paid family leave benefits has numerous shortcomings. As we stated, there is a risk that employees will indirectly bear the costs of the premium that employers are now required to pay. Additionally, while a mandate could cover the entire workforce or workers that do not typically receive benefits, this is unlikely. Data on state mandates for employer-provided health insurance show that less than half of the stateâ&#x20AC;&#x2122;s population benefits. Lastly, the political feasibility of implementing a paid family leave mandate is very low. Even with Californiaâ&#x20AC;&#x2122;s current Democratic leadership, the political fight on behalf of business interests would be substantial, particularly if the economy flattens or declines.

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Evaluating the Policy Alternatives Now that we have presented the three alternatives to provide paid family leave, we evaluate them according to six major criteria that have been referenced throughout the preceding section. Each policy option has advantages and disadvantages, and no one policy receives a perfect score. The following chart introduces the criteria and ranks them according to how well they achieve the criteria goal.

Chart 7: Comparing the Policy Alternatives According to Major Criteria Maximize Well-being of Leave Taker Minimize Employer Impact Minimize Government Cost Administrative Feasibility Political Feasibility Maximize Equity TOTALS

State Disability Insurance

Unemployment Insurance

Employer Mandate

### ### ## ### ## ## 15

# ## ## ## # # 9

## # ## # -## 9

Comparing Criteria The following discussion on the evaluation of the criteria indicates why SDI stands out as the preferred policy option for paid family leave.

Maximize Well-Being of Leave-Taker Workers need to be able to access a paid family leave benefit easily. A critical element of accessibility is affordability and value, which means that workers should not pay more for the benefit than is fair, and they must not sacrifice wages or job security for it. SDI has the best combination of factors for employeesâ&#x20AC;&#x2122; well-being. Most workers already pay into SDI, so there is no new bureaucracy to put into place. The SDI wage replacement level is higher than Unemployment Insurance. Furthermore, SDI provides a uniform percentage of wages for all beneficiaries, unlike UI. An employer mandate could provide a wage replacement that is at least as generous as SDI. However, it is likely that a mandate would be structured in a way that excuses certain firms from providing paid family leave, based on size of firm, type of employee, and whether they are able to waive out of the mandate.

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discrepancies between which workers are covered and to what extent. In sum, SDI is the most generous, stable, and established alternative.

How this benefit is financed will affect the well-being of the leave-taker. If the program is funded through SDI, by expanding the current employee contribution, employees will bring home a few less dollars every month. If employers are mandated to pay for the benefit then these costs will most likely be passed through to the worker. This could lead to lower wages or fewer job opportunities as labor costs increase with the added benefit. While this is a very real concern, employers raise this argument whenever government considers taking action to correct a market failure or market imperfection that occurs when employers fail to meet the needs of their workers. Future cost estimates should better predict the cost to employers and the potential impact on the working families who stand to gain from the benefit.

Minimize Employer Impact An effective paid family leave benefit needs to minimize the cost to employers of disrupted business operations and a lowered bottom line. A mandate for a paid family leave benefit that is paid for entirely by employers is the most costly to business, both in benefits and through overhead costs of administration and compliance. An expanded UI program would split the costs between employers, who pay the premiums, and the state, which administers the program.

This could burden small and mid-sized employers.

Both expanded UI and an

employer mandate are potentially costly to businesses, whereas the costs of SDI are those associated with reduced productivity during leave.

Employers already interface with the SDI system when their workers become sick or pregnant. An alternative payment structure that shares costs among employers and employees would have a greater impact on employers. These costs would likely be offset by some of the productivity and loyalty gains in having a more family-friendly workplace, though these benefits are not immediately quantifiable. Additionally, legislation could be introduced to subsidize small employers in order to mitigate the costs of any of the policy scenarios to ensure that employees in these businesses can also benefit from taking leave in a family crisis.

Minimize Government Cost It would seem that the employer mandate would impose the least cost on government if employers pay for the entirety of the premium. However, there are other potential costs to government that may occur through a mandate. An employer mandate would require the state to Page 38 of 47

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create a new structure to oversee its implementation as well as investigation and oversight of employer compliance. In addition, significant public subsidization of the mandate may be needed to protect smaller employers, which would add to the overall government cost. The State of California will have the primary responsibility to ensure that any paid family leave policy is implemented fairly and equally to all eligible workers. The SDI and UI options have existing administrative structures that can be expanded to provide this added benefit. Furthermore, the administrative cost of the new program can be built into the premium to mitigate some of the governmentâ&#x20AC;&#x2122;s cost. Therefore we feel all of these options could be equally costly to government.

Administrative Feasibility The ease of implementation of a paid family leave benefit greatly impacts the ability of workers to utilize the benefits of the program. The advantage of SDI is that the program works well for sick workers and pregnant women, with the majority of beneficiaries receiving their expected benefits in a reasonable amount of time and with few problems. Furthermore, we are assured that the department would be able to implement the program based on the EDDâ&#x20AC;&#x2122;s report, which indicated that the program would be administratively feasible. UI also has an existing structure. However, stricter eligibility requirements and complicated benefit calculations mean that beneficiaries face considerably more difficulties with UI than with SDI. An outright employer mandate would be administratively burdensome on employers, many of whom already complain about the problems of complying with CFRA/FMLA. Under CFRA, employers are responsible for verifying leave, which is an administrative cost to them.

Another flaw in this implementation is the lack of consistency, as employers might implement the law differently and some employees will be unfairly denied leave. The Department of Fair Employment and Housing (DFEH) only investigates a denial if there is a complaint brought against the employer, and many employees will not file a complaint for fear of retribution and losing their job. Regardless of whether a paid family leave benefit is successfully implemented in California, this weakness in the current law should be addressed.

Political Feasibility Although an outright employer mandate for providing paid family leave could cover more workers and have minor oversight costs to government, the cost to employers could launch a massive political offensive by the business community. Current fears of a nationwide economic downturn make this option even more unattractive. At the same time, any program that imposes

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costs to government will be competing against the stateâ&#x20AC;&#x2122;s growing electric bills and a Governor who is not interested in committing the state to future spending. Recently, labor advocates have been pushing unsuccessfully to raise the UI benefit level. This important supporter of a paid family leave law would not prefer using UI to provide the benefit unless there are improvements to UI. Given Californiaâ&#x20AC;&#x2122;s current economic and political environment, SDI is the best of the proposed options. It is a traditional social insurance program that supports workers when they are unable to work for circumstances beyond their control. The program has worked well over the past half century, and has remained fiscally solvent without direct government funding. An employee-funded option would likely incur opposition from anti-tax and anti-government advocates, while the extent of public support would depend in large part on the organizational abilities of advocates. An option of shared funding between employers and employees would draw some opposition from business interests. The degree of opposition depends on the size of the contribution and the willingness of the state to help them face these burdens. Californians need to see better state-specific data that demonstrates both the need and support for paid family leave. The information would persuade legislators to take up this cause. Passage of paid family leave is unlikely to be accomplished within one year or one legislative session. The more work that advocates do now will help to slowly build consensus among a wide range of community leaders. Leaders can work towards a policy compromise that will ultimately be successful and will accomplish the goals of insuring working families against economic disaster due to family medical crises.

Maximize Equity Any mandated benefit that imposes costs on employers puts some workers at more risk than others of losing wages and benefits. Such mandates could disproportionately impact lowwage, low-skilled workers who are seen as replaceable and not worthy of employer investment.

Mandates could also negatively impact the career opportunities for women if they are perceived to be much more likely to take leave to care for a family member. Furthermore, it remains to be seen if low-wage workers are able to subsist on any type of partial wage replacement, even if they were eligible and able to take leave, since their current wages are likely to be below poverty level. The concerns about equity are the hardest to resolve in this evaluation.

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Although the proportion of workers who are unable to take needed leave is relatively small, the fact remains that there are numerous workers in California who can not take necessary time away from work to properly meet the health needs of their loved ones or themselves.

Further research can paint the picture of exactly who these workers are, but they seem to come from all over the workforce. While an employer-mandated benefit could be most equitable if it covers all workers, the backlash of layoffs and pay cuts would outweigh the benefits of being able to take leave in that low-probability scenario that a parent, child or spouse gets seriously ill.

SDI-provided paid family leave would be more equitable than UI, even though it covers fewer workers than UI, (70 percent through SDI as compared to 88 percent through UI). This is because significantly more workers meet the eligibility criteria of SDI than UI, at any given time.

A majority of the remaining 30 percent of workers who are not covered by SDI are covered by parallel plans that are mandated by law to provide equal benefits. Therefore, a change in SDI policy actually covers the vast majority of workers. A paid family leave benefit through SDI and parallel plans would cover more workers and provide a higher benefit level with fewer negative impacts on either government or employers.

General Conclusions Any public program that seeks to raise costs to employers and employees should be thoroughly analyzed and open for rigorous public debate. These steps are essential in order to design and implement a program that will provide the greatest benefits with the least disruption to the workforce. In each of the options presented we presume that take-up rates for a new paid family leave benefit will remain relatively low given the partial wage replacement, limited criteria for taking leave, and the loyalty that most workers have to their job and their desire to perform their job well. In California paid maternity leave rates are shorter, on average, than national maternity leave rates under unpaid FMLA. This indicates that even when paid leave benefits are provided, take-up does not necessarily increase.

SDI provides the best balance of existing structure and policy innovation, imposing minimal costs and offering a bureaucracy that works well. A payment structure that balances the cost among workers, employers and the government will give everyone a part in helping working families to juggle their growing demands of family and work. Supplementary policies to help offset costs to smaller businesses could go a long way to mitigate some of the political

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opposition and increase its administrative feasibility. Advocates should pursue discovery of the extent to which employers would be willing to share some of the costs for a paid leave program to better assist employees.

To maintain the intent of the SDI program, we strongly recommended that any paid family leave program is available to all who pay into it. The original EDD estimates did not consider making it available to non-CFRA eligible workers. However, that distinction would create a great inequity among beneficiaries and tremendous bureaucratic complexities for EDD administrators. To protect and assist the most workers, the Legislature should also consider expanding CFRA to cover more workers. The combination of these two program expansions would increase the small number of vulnerable workers who will be helped by a paid family leave program.

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Areas for Future Research The opportunity to build momentum toward paid family leave in California has already begun, with a coalition of policy advocates working together, including labor, women and children’s organizations across the state. In order to move closer to the goal, several steps need to be taken to better understand the actual need for paid family leave in California and to build support among the workers who would likely pay into the system. ! Data collection. This report has tried to estimate the magnitude of the need for paid family leave based on national data. Advocates in California should undertake a statewide survey of employers and employees to better estimate the demand of workers and the ability of employers to withstand such a policy.

California boasts a higher number of immigrant workers and small businesses than the US average; therefore, our workforce may be somewhat different than the one painted in the FMLA report. This data could help the Legislative Analyst’s Office, or other such fiscal agencies, to undertake a more concrete cost estimate of expanding SDI to pay for paid family leave. ! Community support. This report concludes that there is a need for paid family leave to help workers better meet their caregiving needs. Still, advocates need to do outreach to workers across the state to better understand their willingness to pay for such a benefit. This type of social policy expansion will undoubtedly garner significant public discourse about the role of government in providing such family benefits. Therefore advocates need to get out and hold community forums or town hall meetings with workers from all income levels. These forums could also be useful for collecting data about the need for and impact of such a program.

Once advocates better understand the demands of the California public that information can be used to create a better strategy to move toward an eventual legislative proposal that will initiate the public debate.

Paid family leave will provide wage replacement that can help workers take advantage of current family leave policy, without endangering their family’s financial well-being. However,

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27 percent of the workforce is still uncovered by FMLA and CFRA. Therefore, if paid family leave is funded through SDI, there would still be a number of workers who are eligible for wage replacement who do not have the job protection they need to take such a leave. California legislators should build upon the federal proposal to expand FMLA to businesses of 25 and more employees.

This will ensure that more California workers can better meet their family

caregiving needs without putting themselves and their families at risk. This proposal is worthy of a separate policy analysis. However, the results of any survey like the one proposed above would also tell advocates how able and willing California employers are to survive such a policy change.

Finally, it is relevant to note that any major policy expansion has always suffered from an accusation that “the sky is falling”, or would fall, if the policy is passed. While not every program expansion has been successful, neither pregnancy leave nor FMLA has bankrupted employers or diminished our national economy. The policy debate around a program expansion should be rigorous, and both sides should be armed with the best possible data and fiscal analysis to support their cause. However the argument for paid family leave is one who’s time has come, and the coalition of advocates who have begun this effort should push hard to give this idea the legitimacy it deserves to truly help American families survive the rigors of the 21st Century.

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Endnotes 1

Cantor, David et al. (2000). “Balancing the Needs of Families and Employers: Family and Medical Leave Surveys.” Westat for the US Department of Labor. On line. http://www.dol.gov/dol/asp/public/fmla/main.htm.

2 Institute for Women’s Policy Research. (November 2000) “Fact Sheet: Paid Family and Medical Leave: Essential Support for Working Women and Men.” IWPR Publication #A124. On line. http://www.iwpr.org.

3 “The Future of California: Work and Family Programs: Report and Recommendations” prepared by the Work and Family Advisory Committee, California Department of Personnel Administration. September 2000, On line http://www.dpa.ca.gov/workingfamilies.

4 Cantor, David et al, (2000). “Balancing the Needs of Families and Employers: Family and Medical Leave Surveys.” Westat for the US Department of Labor. On line. http://www.dol.gov/dol/asp/public/fmla/main.htm, p 1-7.

5 The 1996 report is titled “A Workable Balance: Report to Congress on Family and Medical Leave Policies.” The 2000 report is titled “Balancing the Needs of Families and Employers: Family and Medical Leave Surveys.”

Several states have used the data from these surveys to build some innovative and well reasoned approaches to create projections of future leave use, as well as estimate costs for implementing paid leave policies. New York and New Jersey used the data to prove the applicability of the survey numbers to the state, and the estimates were shown to be valid.

6 State of California. Employment Development Department, “California Size of Firm Report, 1999: Table 1, Reporting Units, UI Insured Employment and UI Insured Payroll by Size of Reporting Unit, Third Quarter, 1999.” On line. http://www.calmis.cahwnet.gov/file/indsize/cal$sf9.htm.

7 These numbers were calculated by multiplying these proportions by California’s total workforce of 17,180,000 (2000).

8 Leave needers are workers who needed leave but did not take it as found in the 2000 DOL Report.

9 Bureau of Labor Statistics. (1999) “Employee Benefits in Medium and Large Private Establishments, 1997.”

Department of Labor. Bulletin 2517.

10 Fredriksen-Goldsen, Karen I. and Scharlach, Andrew E. (2000) Families and Work: New Directions in the Twenty-First Century. New York: Oxford University Press.

11 Graetz, Michael J. and Mashaw, Jerry L. (1999) TrueSecurity: Rethinking American Social Insurance, p. 56.

New Haven: Yale University Press.

12 Ibid.

13 Families and Work Institute. (1997). “National Survey of the Changing Workforce.” On line. http://familiesandwork.org.

14 Ibid.

15 Bureau of Labor Statistics (1999). “States: Persons At Work 1 To 34 Hours By Sex, Race, Reason For Working Less Than 35 Hours, And Usual Status, 1998 Annual Averages.” Geographic Profile of Employment and Unemployment, 1998 Publication. P. 94.

16 Testimony of Vicky Lovell, Ph.D., Institute for Women’s Policy Research. (September 7, 2000) “Paid Family and Medical Leave: Supporting Working Families in Illinois.” IWPR Publication #B235.

17 Annie E. Casey Foundation. Kids Count 2000, p. 38.

18 Mishel, Lawrence, Bernstein, Jared, and Schmitt, John. The State of Working America 2000-01. Economic Policy Institute. Ithaca, NY: Cornell University Press.

19 Ibid.

20 Sirianni, Carmen and Negrey, Cynthia. “Working Time as Gendered Time.” Feminist Economics 6(1), 2000, 5976.

21 Work and Families Institute. (1997). “Executive Summary: The 1997 National Study of the Changing Workforce.” On line. http://www.familiesandwork.org.

22 Ibid, p 68.

23 State of California, Department of Finance, County Population Projections with Age, Sex and Race/Ethnic Detail.

Sacramento, California, December 1998. Online http://www.dof.ca.gov: 8080/html/demograp/proj%5Fage.htm.

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24

Scharlach, A. (1999). “Caregivers in the 21st Century” Testimony provided for a Joint Legislative Hearing before the California Senate Subcommittee on Aging and Long-Term Care and the Assembly Select Committee on Aging, February 2, 1999, in Sacramento. On line. http://cssr21.socwel.berkeley.edu/aging/projects/care21.html 25 Beers, Thomas M. (2000) “Flexible Schedules and Shift Work: Replacing the ‘9 to 5’ Work Day?” Monthly Labor Review. Vol. 123 (6). Bureau of Labor Statistics. On line http:// stats.bls.gov/opub/mlr/index.htm.

26 Families and Work Institute. (1998) Business Work-Life Study (BWLS). http://www.familiesandwork.org.

27 Golden, L. (2000). “ The Time Bandit: What U.S. Workers Surrender to Get Greater Flexibility in Work Schedules.” Economic Policy Institute. Issue Brief #146. p. 1. On line. http://www.epinet.org 28 Ibid, p. 2.

29 National Research Council. (1991) Work and Family: Policies for a Changing Work Force. Eds, Marianne A. Ferber and Bridgid O’Farrell with La Rue Allen. Washington, D.C: National Academy Press.

30 Mitchell, Olivia S. (1997) “Work and Family Benefits” in Gender and Family Issues in the Workplace, pgs. 269278. Francine D. Blau and Ronald G. Ehrenberg, Eds. New York: R. Sage Foundation.

31 Families and Work Institute. (1998) Business Work-Life Study (BWLS). http://www.familiesandwork.org.

32 Foster, Ann C. (Summer 2000) “Private Sector Employee Benefits, 1996-97” in Compensation and Working Conditions, Bureau of Labor Statistics, U.S. Department of Labor.

33 Scharlach, A. (1999). “Caregivers in the 21st Century” Testimony provided for a Joint Legislative Hearing before the California Senate Subcommittee on Aging and Long-Term Care and the Assembly Select Committee on Aging, February 2, 1999, in Sacramento. On line. http://cssr21.socwel.berkeley.edu/aging/projects/care21.html.

34 Leibowitz, Arleen, “Child Care: Private Cost or Public Responsibility?”, Individual and Social Responsibility, ed.

Victor Fuchs, 1993, pp 40-41.

35 Ibid, p 50.

36 Leibowitz, Arleen, consultation on February 22, 2001.

37 Ibid, pp 116-117.

38 Ruhm, C.J. (2000) “Parental Leave and Child Health.” Journal of Health Economics. Vol. 19 (6). P.3.

39 Ibid.

40 Klerman, Jacob Alex and Leibowitz, Arleen. (1997) “Labor Supply Effects of State Maternity Leave Legislation.” Francine D. Blau and Ronald G. Ehrenberg, Eds. New York: R. Sage Foundations.

41 Metropolitan Life Insurance Company. (1999) “The MetLife Juggling Act Study: Balancing Caregiving with Work and the Costs Involved.”

42 Phone conversation on February 16, 2001, with Julie Broyles of the California Chamber of Commerce.

43 Statement of George G. Daniels, Owner of Daniels Manufacturing Corporation, Orlando Florida. Testimony before the House Subcommittee on Oversight and Investigations, Committee on Education and the Workforce.

June 10, 1997.

44 National Conference of State Legislatures, http://www.ncsl.org/programs/employ/01babyui.htm.

45 Philadelphia Inquirer. (February 26, 2001) “Historic First for Jersey.”

46 Children’s Defense Fund - Minnesota, http://www.cdf-mn.org 47 Graetz, Michael J. and Mashaw, Jerry L. (1999) TrueSecurity: Rethinking American Social Insurance, p. 56.

New Haven: Yale University Press.

48 State of California Employment Development Department. (2000) “The Fiscal Impact on the Disability Insurance Fund of Extending Disability Benefits to Individuals Granted Family Leave.”

49 Direct Footnote taken from Maurice Emsellem testimony. “For example, the Massachusetts unemployment statute provides that, “[a]n individual shall not be disqualified from receiving benefits under the provisions of this subsection, if such individual establishes to the satisfaction of the director that his reasons for leaving were for such an urgent, compelling and necessitous nature as to make his separation involuntary.” Mass. Gen. Laws Ann., c. 151A, Section 25(e), para. 2.”

50 Sherriff, Rona L. (2000) “Lagging the Nation: California’s Jobless Benefits.” California Senate Office of Research. On line. http://www.sen.ca.gov/sor/jobless3.html.

51 U.S. Small Business Administration News Release. November 22, 2000. “Small Firms Face Obstacles Finding Affordable Insurance.” SBA Number 00-12 ADVO. 52 Hearing Before the Commission on Small Business, United States Senate, One Hundred Fifth Congress, First Session, June 4, 1997.

Page 46 of 47

An Affordable Family Leave Policy for California’s Working Families

53

Henderson, David R. “Employer Mandates: A Threat to Employees” from The Freeman, a publication of the Foundation for Economic Education, Inc., January 1995, Vol. 45, No. 1.

54 Ibid.

55 Jensen, Gail A. and Morrisey, Michael A. “Employer-Sponsored Health Insurance and Mandated Benefit Laws” in Milbank Quarterly, Volume 77, Number 4, 1999.

56 Ibid.

57 Ruhm, Christopher J. (1997) “Policy Watch: The Family and Medical Leave Act.” Journal of Economic Perspectives, Volume 11, Number 3-Summer 1997-Pages 175-186.

58 U.S. Advisory Commission on Intergovernmental Relations. (1996) “The Role of Federal Mandates in Intergovernmental Relations: A Preliminary ACIR Report for Public Review and Comment.”

59 Jensen, Gail A. and Morrisey, Michael A. “Employer-Sponsored Health Insurance and Mandated Benefit Laws” in Milbank Quarterly, Volume 77, Number 4, 1999.

Page 47 of 47

Appendix 1 California Family Rights Act The California Family Rights Act (CFRA) ensures secure leave rights for: Birth of a child for purposes of bonding; Placement of a child in the employee's family for adoption or foster care; The serious health condition of the employee's child, parent or spouse; The employee's own serious health condition. A serious health condition includes an illness, injury (including on-the-job injuries), impairment, or physical or mental condition of the employee or a child, parent or spouse of the employee that involves either: in-patient care (i.e., an overnight stay) in a hospital, hospice, or residential health care facility; continuing treatment or supervision by a health care provider.

A CFRA eligible employee must work either full-time or part-time, in California, have more than 12 months (52 weeks) of service with the employer, have worked at least 1,250 hours in the 12-month period before the date the leave begins, at a location where the employer has at least 50 employees within 75 miles radius of the work site.

Leave Duration Maximum CFRA leave is up to 12 work weeks in a 12-month period. It does not need to be taken in one continuous period of time. Minimum CFRA leave is two weeks when the leave is taken for the birth, adoption, or foster-care placement of a child. An employer shall grant a request for a CFRA leave of less than two weeks on any two occasions. In addition, birth, adoption, and foster care related leave must be completed within one year of the qualifying event. If both parents are eligible for CFRA leave but are employed by the same employer, that employer may limit leave for the birth, adoption, or foster-care placement of their child to 12 work weeks in a 12month period between the two parents. Incremental CFRA leave or a reduced-work schedule may be taken when it is for the serious health condition of a parent, child, or spouse or for the serious health condition of the employee, when medically necessary, as determined by the health care provider of the person with the serious health condition.

CFRA-eligible employees may request a CFRA leave of up to 12 work weeks for reason of birth of a child at the end of a pregnancy disability leave. This leave need not be due to a serious health condition of the employee or the child, or a pregnancy related medical condition.

Employer Responsibility An employer shall provide notice to his/her employees of the right to request a CFRA leave. It is the employer's responsibility to designate leave, paid or unpaid, as CFRA leave. In addition, the employer shall respond to a leave request no later than ten calendar days after receiving the request. Covered employers include the State of California and any of its political and civil subdivisions, and cities and counties, regardless of the number of employees.

An employer is not required to pay an employee during a CFRA leave, except when an eligible employee elects, or the employer requires, the employee to use any accrued vacation time or other accumulated paid leave other than accrued sick leave. If CFRA leave is for the employee's own serious health condition, the employee may elect or the employer may require the employee to use any accrued vacation time or other accumulated paid leave, including any accrued sick leave.

An employer must continue health care coverage for employees during CFRA leave. This obligation commences on the date leave first begins and continues for the duration of the leave(s), up to a maximum of 12 work weeks in a 12-month period. An employer must continue other benefits during an employee's CFRA leave, including life, short-term or long-term disability or accident insurance, pension and retirement plans, and supplemental unemployment benefit plans under the same conditions as would apply to any other non-CFRA work leave.

CFRA Reinstatement Upon granting an employee a CFRA leave, the employer must guarantee reinstatement to the same or comparable position and provide the guarantee in writing upon the request of the employee. This means employment in a position that is virtually identical to the pre-leave position in terms of pay, benefits, and working conditions, including privileges, perquisites, and status. It must involve the same or substantially similar duties, skill, effort, and authority, performed at the same or geographically proximate work site, and the same or equivalent work schedule. An employer may deny reinstatement to an employee if the position ceased to exist, such as in a layoff, if the employee taking the leave is a key employee (salaried and among the highest paid 10 percent) and the denial of reinstatement is necessary to prevent substantial and grievous economic injury to the operations of the employer.

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Appendix 2

2001 State Legislation for Paid Family Leave State

Summary

Arizona HB2458

Provides 90 days of UI benefits for employees on birth and adoption leave.

Arizona SB1059

Provides 90 days of UI benefits for employees on birth and adoption leave.

Connecticut HB5860

Allows employees to accrue unused sick time which may be used for paid family and medical leave.

Florida SB500

Prohibits denial of unemployment compensation benefits for certain leaves of absence re adopting or giving birth to baby; provides for reductions in amount of compensation; requires employers to post certain notices; specifies certain payments as not chargeable against employers.

Indiana HB1783

Establishes family and medical leave unemployment compensation; provides that entitlement to family and medical leave unemployment compensation is available to employees of an employer who employs fifty or more employees; allows insured workers who take more than one week of job protected leave or who leave insured work for reasons that meet the criteria for family and medical leave to receive a maximum of 12 weeks of family and medical leave unemployment compensation; provides that payment of family and medical leave unemployment compensation is not charged against the experience or reimbursable accounts of individual employers.

Massachusetts HB774

Relates to unemployment benefits for birth and adoption

Nebraska LB370

Relates to unemployment benefits; provides for birth and adoption unemployment benefits

New Jersey AB1577

Extends the State's Temporary Disability Insurance System; provides each worker participating in the system with paid family disability leave time to care for members of the worker's family unable to care for themselves, including sick family members and newborn and newly adopted children

New Jersey AB2037

Provides up to 12 weeks of benefits for leave for workers to care for sick family members or to be at home during the first 12 months after birth or adoption; provides that benefits for ill family members are paid from temporary disability insurance while newly adopted or newborn children are paid from unemployment insurance

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Appendix 2 New Jersey AB3049

Authorizes payment of unemployment benefits during leave related to birth and adoption

New Jersey SB1923

Authorizes payment of unemployment benefits during leave related to birth and adoption

Oregon SB241

Permits payment of unemployment benefits to parent who leaves employment during child's first year of life or during first year after child is placed for adoption. Limits benefits to 12 weeks. Requires Director of Employment Department to adopt rules.

Texas HB240

Relates to eligibility of certain employees for unemployment compensation benefits after the birth or adoption of a child

Washington HB1185

Establishes family leave insurance.

Washington HB1520

Establishes family leave insurance.

Washington SB5420

Establishes family leave insurance.

State in session.

Source: National Conference of State Legislatures

A-2.2

Appendix 3 Description of Projections and Cost Estimations

We present a detailed explanation of both the EDD cost estimations and those done for the purposes of this report. The Steps listed below refer to Appendices 4, 5, 6 & 7. See Appendix 8 for a copy of the projected take-up rates (with all steps) for the SDI-eligible population reported by EDD.

EDD Calculations - Steps ! EDD estimated costs for the population covered by SDI, and again for those covered under CFRA. The CFRA-covered population is larger due to the inclusion of state and federal government employees. The EDD report primarily uses the data from the 1995 Commission study “A Workable Balance: Report to Congress on Family and Medical Leave Policies”, as well as program estimates and EDD claim data. ! Projected take up rates constituted leave takers who took unpaid family leave, employees who needed leave but did not take it, and employees who needed leave but did not take it because they could not afford it. EDD estimates 177,186 additional new claims when using the SDI-eligible population and 211,347 new claims when using the CFRA/FMLA-covered population. ! Total new benefit costs are calculated using these projected new claims, the forecasted SDI average weekly benefit amount of $270.02, and a mean leave duration of 6 weeks, as determined by EDD using existing SDI claim duration experience.

EDD’s estimated

additional benefit costs range from $287 to $345 million for 2001. ! Administrative costs for SDI expansion were estimated accounting for additional staffing, forms, and facility costs. These cost estimates ranged from $16 to $19 million for 2001. ! Total costs are estimated at $303 to $361 million, which would be paid for by increasing the employee SDI contribution rate by 1/10th of one percent over the calculated rate for any given year. This represents an increase to employees of $1 for each $1,000 earned, up to $46 for the maximum taxable wage limit of $46,327.

A-3.1

Appendix 3 Our Cost Estimates in Comparison with EDD ! New claim projections are derived from an amended EDD methodology. The total SDIeligible population is the universe for this expansion of benefits. Our estimations included the population of SDI-eligible beneficiaries regardless of CFRA coverage or work history eligibility. This is the primary difference between our usage projections and those of EDD, and explains the sizeable difference in take up rates between the two methodologies. When every person who is eligible for and pays into SDI is qualified for the paid family leave benefit, the projected take up rates increase by one half in comparison to when CFRA ineligible workers are excluded. If the CFRA-ineligibles are excluded, EDD must create a two-tiered system where the eligible are paying more premiums than others to be able to receive the extended benefits, a potentially complex administrative problem that would require a significant realignment of the SDI systemâ&#x20AC;&#x2122;s structure. Including this group also decreases the administrative complication of tracking who in the SDI-eligible population has the work hours and history to be CFRA-eligible, which can change frequently. ! We calculated the percentage of FMLA-covered and eligible employees identified in the national survey (used in Step 2) differently than the EDD report authors. Instead of simply taking the percent of those covered directly from the national report, we multiplied the number of California non-government workers in organizations of 50 or more employees (58.4%) by the percentage of people who are covered and eligible reported in the 2000 national survey (80.5%). ! The EDD measured additional demand for a paid benefit that was once unpaid by including only the leave takers who received no pay for their leave for reasons not currently covered by SDI (Step 6 in Appendix 8). This did not account for the leave takers who currently receive half or less than half of their wages for their leave. This group is likely to use the SDI system for their family leave, because the 55-60% partial wage replacement offered by SDI is higher than what they would receive from their employer. Adding these employees into this step resulted in a slightly increase in projected new claims. ! The 2000 DOL Report found that only 87.8% of leave needers who previously could not take leave because they could not afford it would have taken leave if some/additional pay had been available, as opposed to the 100% that EDD calculated. This is accounted for in Step 9,

A-3.2

Appendix 3 by adding Step 9a and then multiplying this in Step 10 to the percentage of workers who needed to take leave but could not afford it. ! To calculate cost estimates we first calculated the number of leave takers by leave duration of leave, using the rates reported in the 2000 DOL Report Appendix, Table A2-2.2. We subtracted the percent of leave takers who took leave for reasons already covered by SDI (See Appendix 7). We then separated the adjusted leave duration increments into 6 periods of FMLA coverage, in work days: 0 – 5 days, 6 – 10 days, 11-20 days, 21-30 days, 31-40 days, 41 – 60 days, and over 60 days. ! Although CFRA is calculated on a 5-day workweek, SDI and UI pay benefits on a 7-day week. We matched up the CFRA weeks with the SDI weeks, noting that the first CFRA week would be unpaid under SDI rules. We applied the adjusted leave increments to our projected new claims.

•

Calculating the minimum benefit for each leave duration increment: the minimum for the first paid week minimum is one day of pay (SDI equivalent is $39, UI equivalent is $23).

The minimum benefit for subsequent benefit periods is the previous maximum benefit from the previous leave period plus one day. An example using SDI benefit levels is provided: Minimum benefit for the 6-10 range is $39 (5 days of unpaid leave plus the 6th day paid at $39). Minimum for the 11-20 range is $309 (the 6-10 day maximum of 270, plus the 11th day at $39).

•

The maximum benefit is the product of the highest number of full paid weeks in the given increment and the average per week benefit. For the 11-20 day increment, or SDI benefit weeks 2 and 3, the maximum was counted as 3 weeks of the average weekly benefit of $270, which equals $810.

•

The minimum and maximum projected benefits for the over 60 days leave period is calculated as average weekly benefits multiplied by 11 benefit weeks.

! We project 325,389 new SDI claims for paid leave. The costs for this new benefit are between $199 and $232 million for SDI, including estimated administrative costs. We used the average cost as the low end of the range and the maximum cost at the high end because

A-3.3

Appendix 3 there will be increased take up and longer length of leave that we cannot measure with existing data. Even so, our costs are less than those estimated by EDD, and would therefore require a smaller percentage increase of the associated premium. ! We project 319,496 new UI claims for paid leave. The costs for this new benefit are between $97 and $117 million. Again, we used the average cost as the low end of the range and the maximum cost at the high end because there will be increased take up and longer length of leave that we cannot measure with existing data. ! Future calculations should attempt to estimate the effects of some leave takers extending their leaves. According to the 2000 DOL Report, 42% of leave takers who currently receive half, less than half, or no pay reported they would lengthen their leave if they were to receive additional pay. Because there is no way of knowing how long this group would increase their leave duration we did not apply this figure to our calculations. Using this statistic in future calculations may better address the increase in leave duration that a paid benefit might create.

A-3.4

Appendix 4 Steps to Calculate The number of New Claims For Disability Insurance Covered Employees (Calendar Year 2001) 1 SDI Covered Employees Year 2001 2 Percent of FMLA Covered & Eligible Employees calculated as the percent of non-government covered employment 58.4% x Eligibility Rate 80.5%.

3 Number of CFRA Eligible & Covered California Employees (1x2) 4 Number of SDI-covered California employees that are not covered by CFRA (1 -3) 5 Percent of leave takers identified in the 2000 DOL Report 6 Percent of covered employees who took family leave but were not paid calculated from information included in the 2000 DOL Report, Chapter 4.

Begin with proportion of leave takers who received no pay or half or less than half pay (44.5%). Remove the leave usage for own-health and maternity disability already allowed in existing SDI program. Then apply the usage rates for the other four leave reason categories to the total leave takers for these categories.

7 Percent of employees who previously took unpaid leave but would now take paid leave under new legislation (5 x 6).

8 Percent of employees who needed leave but did not take it identified in the "Balancing the Needs of Families and Employers" Table 2.14 9 Percent of employees who needed leave but did not take it because they could not afford it. Table 2.17.

9a Percent of employees needing leave who would have taken leave if some/additional pay had been provided. Table 2.18.

10 Percent of leave needers who couldn't afford to take it who would now take leave because it is paid (9x9a).

11 Percent of employees who need leaves not currently covered by SDI (care for a newborn, or care for ill child, spouse or parent).

12 Percent of employees who did not take leave because it was not paid that would now take leave because it is paid (10 x 11 x 12a) 12 Claim File Rate (8 + 11) 13 Percent of leave taken with a duration of 1 to 7 days.

14 Percent multiplier (1-.42) 15 New Claims for CFRA Eligible - Beneficiaries would receive wage replacement and job security (3 x 12 x 14 ) 16 New Claims Non-CFRA Eligible - Beneficiaries would receive wage replacement only (5 x 12 x 14) 17 Total New Claims Percent of SDI covered employees who will take paid leave.

12,355,000

47.0% 5,808,333 6,546,667 16.5%

22.0% 3.6% 2.4% 77.6% 87.8% 68.1% 55.7% 0.9% 4.5% 42.0% 58.0% 152,972 172,417 325,389 2.6%

Source: EDD Report "The Fiscal Impact on the Disability Insurance Fund of Extending Disability Benefits to Individuals Granted Family Leave"

A-4

Appendix 5 Steps to Calculate The number of New Claims For Unemployment Insurance Covered Employees (Calendar Year 2001) 1 UI Covered Employees Year 2000 Percent of FMLA Covered & Eligible Employees calculated as the percent of 2 covered employment 62.6% x Eligibility Rate 80.5%.

3 Number of CFRA Eligible & Covered California Employees (1 x 2) Number of UI-covered California employees that are not covered by CFRA 4 (1-3) 5 Percent of leave takers identified in 2000 DOL Report Percent of covered employees who took family leave but were not paid calculated from information included in the 2000 DOL Report, Chapter 4.

Begin with proportion of leave takers who received no pay or less than half pay (39.9%). Remove the leave usage for own-health and maternity disability already paid for and covered in existing SDI program. Then apply the usage rates for the other four leave reason categories to the total leave 6 takers for these categories.

Percent of employees who previously took unpaid leave but would now take 7 paid leave under new legislation (5 x 6).

Percent of employees who needed leave but did not take it identified in the 9 2000 DOL Report Table 2.14 9 Percent of employees who needed leave but did not take it because they could not afford it. Table 2.17.

9a Percent of employees needing leave who would have taken leave if some/additional pay had been provided. Table 2.18.

10 Percent of leave needers who couldn't afford to take it who would now take leave because it is paid (9x9a).

11 Percent of employees who need leaves not currently covered by SDI (care for a newborn, or care for ill child, spouse or parent).

12 Percent of employees who did not take leave because it was not paid that would now take leave because it is paid (10 x 11 x 12a) 12 Claim File Rate (8 + 11) 13 Percent of leave taken with a duration of 1 to 7 days.

14 Percent multiplier (1-.42) 15 New Claims (CFRA Eligible - would receive wage replacement and job security) 3 x 12 x 14 16 New Claims Non-CFRA Eligible 4 x 12 x 14 17 Total New Claims Percent of UI covered employees who will take paid leave.

Source: U.S. Department of Labor Employment and Training Administration

A-5

14,255,000 50.4% 7,183,522 7,071,478 16.5%

17.9% 3.0% 2.4% 77.6% 87.8% 68.1% 55.7% 0.9% 3.9% 42.0% 58.0% 161,004 158,493 319,496 2.2%

Appendix 6 Projected New Claims Average Daily Benefit Average Weekly Benefit

Length of Longest FMLA Leave Taken Corresponding Weeks of SDI Pay Percent of All Leave Taken Estimated SDI PFL Claims by leave period Minimum* Per Case Benefit By Leave Period Maximum* Per Case Benefit By Leave Period Minimum* Benefit Payments Maximum* Benefit Payments Total Projected Administrative Cost Total Projected Average Benefit Costs** Total Projected Maximum Benefit Costs Percent of Workforce

$ $

Cost Estimates for New Claims for SDI Paid Leave (Calendar Year 2001) 325,389 38.57 270.00 Length of Longest Leave Taken

0-5 days none 47.4% 154,237 $ $ $ $ -

6-10 days week 1 24.5% 79,838 $ 39 $ 270 $ 3,079,358 $ 21,555,509

11-20 days weeks 2-3 7.6% 24,643 $ 309 $ 810 $ 7,603,776 $ 19,960,652

1.25%

0.65%

0.20%

21-30 weeks 4-5

$ $ $ $

4.3% 13,862 849 1,350 11,762,507 18,713,111

31-40 days weeks 6-7 5.0% 16,417 $ 1,389 $ 1,890 $ 22,796,235 $ 31,028,241

41-60 days weeks 8-11 5.9% 19,272 $ 1,929 $ 2,970 $ 37,167,785 $ 57,238,431

0.11%

0.13%

0.16%

60+ days week 11

$ $ $ $

Total

Total Cost per SDI Covered Employee

5.3% 100.0% 17,120 171,152 3,240 3,240 55,469,587 $ 137,879,249 $ 55,469,587 $ 203,965,530 $ $ 27,803,556 $ 198,725,946 $ 231,769,086 0.14%

11 17

* Miminum = previous range maximum week(s) + one day of new week; Maximum = highest number of weeks in the range. **Total Projected Average Benefit Costs = Average of Maximum and Minimum Projected Benefits + Administrative Costs

Projected New Claims Average Daily Benefit Average Weekly Benefit

Length of Longest FMLA Leave Taken Corresponding Weeks of UI Pay Percent of All Leave Taken Estimated UI PFL Claims by leave period Minimum* Per Case Benefit By Leave Period Maximum* Per Case Benefit By Leave Period Minimum* Benefit Payments Maximum* Benefit Payments Total Projected Average Benefit Costs** Total Projected Maximum Benefit Costs Percent of Workforce

$ $

Cost Estimates for New Claims for UI Paid Leave (Calendar Year 2001) 319,496 22.96 160.71 Length of Longest Leave Taken

0-5 days none 47.4% 151,444 $ $ $ $ -

6-10 days week 1 24.5% 78,392 $ 23 $ 161 $ 1,799,776 $ 12,598,430

11-20 days weeks 2-3 7.6% 24,197 $ 184 $ 482 $ 4,444,137 $ 11,665,861

1.06%

0.55%

0.17%

21-30 weeks 4-5

$ $ $ $

4.3% 13,611 505 804 6,874,525 10,936,744

31-40 days weeks 6-7 5.0% 16,120 $ 827 $ 1,125 $ 13,323,110 $ 18,134,234

41-60 days weeks 8-11 5.9% 18,923 $ 1,148 $ 1,768 $ 21,722,463 $ 33,452,593

0.10%

0.11%

0.13%

* Miminum = previous range maximum week(s) + one day of new week; Maximum = highest number of weeks in the range.

Source: Authors' calculations

A-6

60+ days week 11

$ $ $ $

Total

Total Cost per SDI Covered Employee

5.3% 100.0% 16,810 319,496 1,791 1,768 30,103,175 $ 78,267,186 $ 29,717,237 $ 116,505,098 $ $ 97,386,142 $ 116,505,098 0.12%

11 17

Appendix 7 Calculating Percent of Longest Leave Taken for New Claims

Length of longest leave

A. Taking out those currently covered by SDI - own health and maternity disability.

Percent of leave taken Percent of leave taken for Total leavetakers Leavetakers, Percent of longest for own health and care for (2000 DOL Report, adjusted for new leave, adjusted for maternity disability baby/spouse/child/parent Appendix table A2coverage only new coverage only (2000 DOL Report, (2000 DOL Report, 2.3) Appendix table A2-2.3) Appendix table A2-2.3)

1-3 days

34%

66%

2,888,266

1,909,144

18.2%

4-5 days

39%

61%

5,037,080

3,057,508

29.2%

6-10 days

46%

54%

4,760,928

2,570,901

24.5%

11-30 days

72%

28%

4,444,064

1,239,894

11.8%

31-60 days

71%

29%

3,990,431

1,149,244

11.0%

60+ days Total

76%

24%

2,316,369 23,437,138

551,296 10,477,986

5.3%

Length of longest leave

11-20 days 21-30 days 31-40 days 41-60 days

B. Breaking down categories to smaller increments of leave taken.

Leavetakers, adjusted Distribution of length of Leavetakers, adjusted Percent of longest for new coverage only leave increments for new coverage leave, adjusted for only, by leave new coverage increment only, by leave increment

1,239,894 1,149,244

64%

793,532

7.6%

36%

446,362

4.3%

46% 54%

528,652 620,592

5.0% 5.9%

C. Calculating new leave takers.

Length of Original percent of New percent of leave longest leave leave takers takers, adjusted for new coverage only 1-3 days

12.3%

18.2%

4-5 days

21.5%

29.2%

6-10 days

20.3%

24.5%

11-20 days

12.1%

7.6%

21-30 days

6.8%

4.3%

31-40 days

7.9%

5.0%

41-60 days

9.2%

5.9%

9.9% 100.0%

5.3% 100.0%

60+ days Total

Source: FMLA Report 2000, Tables A2-2.2 and A2-2.3, and authors' calculations

A-7

Appendix 8 EDD

Source: EDD, “The Fiscal Impact on the Disability Insurance Fund of Extending Disability Benefits to Individuals Granted Family Leave”, 2000.

A-8