Paid Leave Benefit Policy Needs to Take into Account the Future of Work

The United States is the only developed nation in the world without some form of guaranteed paid leave to care for a new child, a seriously ill family member, or one’s own medical needs. Our outlier status means that we have an opportunity to design a policy that takes into account the dramatically different relationships between firms and workers that exist today as compared to those that were in place at the time of the New Deal, when the foundation for existing policies designed to shore up family economic security were built (including Social Security, disability insurance, and unemployment insurance).

A new program should be flexible enough to adapt to changes in the structure of labor markets in the future, to the maximum extent possible. Indeed, shoring up family economic security in the United States going forward requires a serious consideration of the changing nature of work, and paid leave policy presents an important opportunity to do just this.

In general, labor economics provides solid reasons to think twice before designing policies that depend on a clear link between an individual employer and employee. Research demonstrates the role that employer-based insurance can play in creating undesirable “job-lock,” as well as the role that public policies designed to improve benefit portability can play in encouraging productive job-to-job mobility. Policies that decrease job-to-job mobility (and increase job-lock) are problematic, given the importance of job-switching to workers’ upward earnings trajectories and firm productivity. Finally, those most likely to face serious challenges to self-insuring — low-wage workers, for example — are also those least likely to receive benefits from their employers, according to the US Bureau of Labor Statistics.

Three related economic trends characterizing the current labor market have major implications for the design of paid leave policies — and all point to the necessity of ensuring that paid leave benefits are not dependent on a traditional employer-employee relationship.

First, an increasing share of the American labor market is comprised of “gig” workers, where workers take on short-term jobs, often as 1099 contract employees or as self-employed workers. One recent study by economists Larry Katz and Alan Krueger finds that the share of workers engaged in “alternative work arrangements” (including temporary help agency workers, on-call workers, contract workers, and independent contractors) rose from 10.1% in 2005 to nearly 16% in 2015, accounting for 94% of the growth in GDP over that period.

Second, firms are shedding secondary business functions in order to focus on their primary specialization. Economist David Weil refers to this as the “fissuring” of the workplace, and notes that the split means that many workers have no clear sense of their actual employer, including no meaningful relationship with a company HR department — a key source of managerial decision-making regarding paid time off. (Consider the example of the hotel housekeeper who spends her days cleaning rooms in a large corporate-branded hotel, yet receives a paycheck from an out-of-state cleaning firm with whom the hotel has contracted, and which is managed by people she’s never seen or spoken with.) While more research is needed on the consequences of fissuring for workers across the earning distribution, work from economists Arin Dube and Ethan Kaplan on the consequences of the fissured workforce suggests that, when compared to workers in non-fissured firms, those employed by fissured firms earn lower wages and receive fewer benefits.

Third, today’s part-time worker looks very different from the part-time worker of the mid-20th century. Nearly one-fifth of the American workforce is employed part-time, a number that has remained relatively stable since the 1980s. The composition of the part-time workforce has shifted from primarily married women and young workers to prime-age workers with low levels of education. The share of part-time workers who are “involuntarily” part-time (who would prefer to work full-time if a job was available) is elevated for low-wage workers. Part-time workers are less likely to receive employer-based benefits and more likely to face substantial unpredictability in their work schedules.

A hard look at the current structure of the labor market — and the future of work — suggests that any system designed today ought to de-link specific employers and their employees, and instead focus on employee labor force attachment as captured by other metrics, such as earnings history. The absence of a paid leave policy in the United States provides a unique opportunity to build a system that helps families manage the balancing act between work and caregiving faced by millions of Americans daily. Benefit portability is a basic principle that belongs front-and-center in the paid leave conversation.

Elisabeth Jacobs is a Senior Director at the Washington Center for Equitable Growth.