When asked, workers say that affordability is a key barrier that limits taking temporary leave from work to address childbirth, adoption or serious health issues. 1
How bad is it? In a recent study, diversitydatakids.org researchers estimated the costs of unpaid leave for year-round workers compared to a hypothetical national paid leave program. The hypothetical program was modeled on the longest running and most evidence-based program in California, which offers paid leave in the form of partial wage replacement that is designed to replace a higher proportion of wages for lower-income workers. In particular, the researchers estimated the differences in wage loss and economic hardship for black and Hispanic workers, who have lower resources to absorb fluctuations in their incomes, under unpaid leave (current national policy) and partial wage replacement (hypothetical national policy).
Workers would lose a quarter of family income in the short-run
If the median worker employed year round wanted to take 6 weeks of unpaid leave, s/he would lose approximately $4,600 in wages, which is about four and a half months of rent. Over a three-month period, this short-term wage loss translates into 27% of family income. Considering that about 40% of Americans would not be able to cover a $400 emergency, unpaid leave can be untenable for many workers.
Black and Hispanic working families would be more vulnerable to wage loss when taking unpaid leave
There are racial/ethnic differences in the cost of 6 weeks of unpaid leave. White workers would lose the most in absolute total wages, but black workers would lose the most wages relative to total family income. Why? One reason is that for black workers, wages represent a larger share of total family income. Therefore, when they are temporarily not working to address health issues, family income plummets more. Hispanic families are also vulnerable to wage loss because although they are more likely to have additional earners in their families who could support them while taking unpaid leave, they make overall lower wage contributions. Temporary unpaid leave from work is especially problematic because according to a Federal Reserve report, black and Hispanic families have lower wealth to handle financial setbacks compared to non-Hispanic white families. 2
A national paid leave program would protect families against economic hardship
For workers who are already in a financially precarious situation—living right at the threshold of economic hardship—losing wages to take unpaid leave can push them into economic hardship (defined as falling below 200% of the federal poverty level).
For workers, paid leave can mean the difference between falling into hardship or not. Indeed, paid leave would protect 68% of workers who would otherwise fall into economic hardship if they had to take unpaid leave. Black and Hispanic workers face a greater likelihood of falling into short-term economic hardship under unpaid leave and a lower likelihood of leaving economic hardship under paid leave compared to non-Hispanic white workers.
Even under a partial wage-replacement program similar to the California paid leave policy, one-third of workers would not be protected from falling into hardship even with paid leave. These are workers with the lowest incomes right above 200% of the federal poverty level. These workers would only be helped by programs that offered 100% wage replacement, instead of partial wage replacement.
- 1Klerman, J. A., Daley, K., & Pozniak, A. (2012). Family and medical leave in 2012: Technical report. Retrieved from website: https://www.dol.gov/asp/evaluation/fmla/fmla2012.htm.
- 2Dettling, L. J., Hsu, J. W., Jacobs, L., Moore, K. B., & Thompson, J. P. (2017). Recent trends in wealth-holding by race and ethnicity: Evidence from the Survey of Consumer Finances. Retrieved from website: https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealth-holding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances-20170927.htm.
Enhancing equity in state/local paid leave programs
To make paid leave more affordable and increase racial/ethnic equity in access to affordable leave, several paid leave policies that target higher wage replacement to the lowest earning groups (80% to 100% wage replacement) are in effect in Washington D.C., Washington state and were recently passed in Massachusetts, Connecticut and Oregon.
Other ways of addressing affordability and equity include setting a floor on wage loss or targeting higher wage replacement to families rather than individual workers. For example, France pays higher allowances to single working parents, and in Norway, single working mothers have longer leave that would have otherwise been allocated to fathers. Adopting paid leave policies that have explicit equity goals has the potential to make family and medical leave more affordable to more workers.
Note: diversitydatakids.org defines economic hardship as family income below 200% of the federal poverty level.