Association for Public Policy Analysis & Management

California’s Paid Family Leave benefit has now been available for more than a decade.  New Jersey’s benefit has been active for 5 years, and Rhode Island’s for about eighteen months.  Each of these family leave systems is built atop an existing temporary disability insurance program, and allows new parents to take six to fourteen weeks of leave with some replacement pay.  The lag between state-level unpaid family leave legislation and the Family and Medical Leave Act of 1993 was roughly thirteen years, which hints at the possibility of a national proposal meeting with success soon.  The major barriers to paid leave policies are concerns over costs and employer concerns over lost productivity.  This paper addresses the first concern, delving into the costs associated with paid family leave with a focus on how costs are heavily influenced by the details of the policy.

This paper presents simulation estimates of the cost of paid family leave policies of varying lengths, wage replacement rates, and weekly benefit caps.  Estimates are produced at the national level and for all fifty states and Puerto Rico.  Income data from the 2014 March Current Population Survey (CPS) and leave-taking data from the Early Childhood National Longitudinal Study, Birth Cohort (ECLS-B) are used in a series of Monte Carlo simulations to estimate overall program costs and necessary payroll tax contribution rates to support policies specified with different parameters.  Benefit periods including 6 weeks, 12 weeks, and 24 weeks are examined.  Subsidy levels simulated include 55%, 70%, 85%, and 100% wage replacement.  Weekly benefit caps tested include $595, $752, and $1,075– following New Jersey, Rhode Island, and California’s weekly benefit cap policies– and $2,250, or 100% of the weekly income eligible for U.S. Social Security contributions.  Results can be used to inform discussions on where to target paid leave benefits to keep program costs in line with goals.  For example, if the primary goal is to assist low income parents ability to take leave, a lower weekly benefit cap would control program costs.  On the other hand, if a policy is aimed at improving gender equity in the workplace, a higher benefit cap and a relatively high wage replacement rate may increase the proportion of fathers taking family leave.  This paper aims to inform the debate and highlight the policy levers available when forming a paid family leave program.