The biggest misconception about paid leave is that it is primarily a funding program to support working caregivers. Money in, money out. No wonder it draws so little skepticism.
The truth is more complicated. Few public discussions give the role of job protection its due. Yet it is this feature in the public policy scheme that introduces some of its most profound spreading impacts. It risks defeating what should be the ultimate goal – upward mobility.
- What makes this policy scheme unique.
- What is the family and medical leave job protection and what is its intent?
- Labor laws – protection and justice, or barrier to mobility?
- Upward mobility is the ultimate goal, isn’t it?
What makes this policy scheme unique
To provide paid leave, the government extracts this benefit from where it has always been rooted – employers in context with their unique business. Workers expect the features to look the same. But they can’t.
To manage the benefit in a public administration on such a large scale, decoupled from the work environment, the program must rely on policy tools that are unique to the government. Those tools are necessary because when the function shifts from employers to government, the goals shift as well. The primary focus is no longer responding to the changing needs of individual employees to attract and retain a workforce – a workforce that is essential to support a mission of serving customers. It turns out that that matters. A lot.
The overarching vision of the paid leave scheme is to eliminate risks for working caregivers as they juggle work and caregiving responsibilities. More importantly, it seeks to achieve equity, ensuring that all workers enjoy that relief. The grand scale framework expects to resolve deeply rooted conflicts while providing uniform, universal, full-level benefits for workers, regardless of their role in the economy or the value or risks they present to employers.
Benefits provided by employers in the private sector rely on the free association among employers and employees. While there are a number of laws that stipulate guidelines, these benefits are reflected in private employment contracts, interpersonal relationships, trust, and negotiation. The government provision of a benefit like paid leave relies instead on a universal mandate. No negotiation, no interpersonal exchange. Instead, a complex web of rules and legal guidelines enforced by the government.
It is one employment compensation contract forced on all workers. Once signed by voters, employees and employers no longer have individual control over its terms. How this plays out is difficult to quantify and track. But the impacts are very real for workers, businesses that rely on a workforce, and the economy.
The benefits delivery system looks different when provided by the government and it will behave differently when provided by the government.
To achieve the ambitious goal of full universal benefits, PFML adapts an old wage replacement model introduced in the 1930s, social security, and job protection, a legal tool to protect absent caregivers from competition.
The partial wage replacement program is supported by a payroll tax on workers. The state’s department of labor processes a worker’s submitted claim. If deemed a qualifying leave, payment is issued. Job protection is a legal right. It can be exercised either as a grievance directly to the department or by filing suit in a court of law against an employer. The two work together in tandem. They deliver workers the peace of mind that should facilitate greater take-up of the benefit without fear of income or job loss. In theory.
What is the family and medical leave job protection and
what is its intent?
The federal law passed in 1993, FMLA, Federal Medical Leave Act, creates a right to leave for eligible employees. It imposes a number of prescriptions on employers. Among them are these main terms. Interference with the decision to take leave is prohibited. Employers are required to maintain the employee’s healthcare benefits. Employers are required to reinstate the employee to their previous role or equivalent. Actions that are considered discrimination or retaliation are prohibited.
To avoid violating the FMLA law, employers must be vigilant. The taking of a qualified leave must not negatively influence any employment actions, such as reassignment or promotion, discipline, layoff, or termination.
The intent of the job protection is to support job and financial security for working caregivers.
To remain compliant, an employer can not replace the worker or fill the vacant role unless they also reinstate the absent worker to an equivalent position upon their return. This requirement leaves most employers with few options to cover the suboptimal operating conditions. The duration can be for up to 12 weeks or nearly three months.
The thinking is that this supports caregivers, particularly women since they are the predominant caregivers. It should prevent a loss of job status, career earnings as a result of a job interruption. Theoretically, it will result in easier access to continued participation in the workforce. But how employers respond to the resulting friction and how that scales is not fully understood. Proponents of government paid leave claim that the advantage of the government providing this benefit is scale. But not only benefits scale. Harm scales too.
Like any public policy instrument, there are two sides to job protection – a benefit and a cost side.
How will companies adapt to the loss of agility as the policy eliminates options for managing its staffing and operations? The restrictions have an uneven impact across different types of businesses. It raises the cost of doing business, and it threatens productivity and profit margins. Will paid leave compliance become another avoidance exercise, a search for safe harbor from aggressive labor law enforcement? And what does that look like for workers in the job market?
A closer look – the steady loss of freedom to “figure stuff out.”
Undergirding the paid leave scheme is that it disrupts “employment at will.” The legal concept allows employees and employers to separate freely. The employee is free to leave the employer. The employer is free to terminate the employee – as long as they do not violate any laws. Yet there are a growing number of rules that govern workplace practices and laws that trigger complaints or lawsuits for wrongful termination or employer practices violations.
These laws undermine the ability of an employer and employee to freely negotiate their working relationship and conflicts. That challenging process relies on trust that can be earned but also broken. No one wants to work for a bad or unfair employer. No employer wants to hire a bad employee. But rigid laws preempt the growth of other less harmful solutions. With growing communications networks, bad employers have a hard time attracting talent. Technology supports better matching. Both now have a higher rate of success at finding a suitable match, one with the other.
Relationships are hard. They are hard because people are – well – people. And people can be counted on to do stupid things or sometimes, harmful things. Over-reliance on labor laws to resolve employee-employer conflicts is a dangerous strategy. More effective in the long run would be strategies that rely on building interpersonal trust through what is a messy process as business management and practices compete. The most successful firms steadily improve in response to workers’ changing needs.
Labor laws – protection and justice, or barrier to mobility?
Labor laws have always been created with the intent of laying ground rules for fair practices. Over time, however, they have expanded and grown more complex. Today’s labor laws go far beyond the fundamentals. Now, more than ever, government agencies dictate detailed business practices. This leads to stasis and a lack of flexibility that has far-reaching consequences for innovation and economic growth.
Advocates want labor laws to “have teeth.” A private right of action grants employees the right to file a suit in a court of law after exhausting the administrative complaint process. It has become a favored tool at the state level as well. Stronger measures allow employees to skip the administrative process altogether. The administrative route can be slow but is typically less costly. In either case, a complaint leads to a considerable loss of time and resources for an employer. Even if the case is found to be frivolous or without merit. Contrary to many nations, including those in Western Europe, the US is not a “loser pays” system. Even if the employer prevails, they often bear the costs of defending themselves. Many cite this as a reason for the proliferation of frivolous lawsuits.
State-level laws are meant to expand the protections of the related federal laws. But they inevitably add to complexity and confusion. Employers retain counsel or belong to trade organizations to keep up with the overwhelming changes that they are expected to know and comply with. Federal employment laws are adjudicated by the EEOC, Equal Employment Opportunity Commission, or (as in the case of FMLA) the DOL, Department of Labor. States have their own adjudication infrastructures. Overlap among the laws is a concern. There is a growing industry of firms that provide software-supported systems to manage the expanding risks, but it comes at an additional cost. Not as costly, however, as not having a system in an environment of rapidly rising risks.
An unfortunate outcome of this new “normal” is that critical feedback loops are broken. Employers must become focused on risk management and compliance. This detracts from adapting and growing working relationships for mutual benefit directly with their employees. It also diverts resources that could be directed toward wages and benefits.
Another unfortunate outcome: one painful experience with the federal or state adjudication systems or the spread of concern among industries can intimidate good employers. It leads to rigid compliance and sends a chill through the workplace, eroding workplace cultures. Employees lose previous freedoms or flexibility.
Expanding reliance on FMLA increases its negative consequences.
In their report of the 12 months ending in Sept 2019, USCourts.gov report that there were 1,316 cases filed in US District Courts related to FMLA up from 1,139 in 2015.1 The US Department of Labor is the agency charged with overseeing FMLA. Attorneys across the country monitor these cases. Each helps to refine what may be unclear or confusing. Attorneys can then advise employers trying to remain compliant. 2
Over time, employers learn what constitutes a violation, but it can be downright intimidating for a new entrepreneur. Keeping up with the details of what you can and cannot do and then apply them in the context of a unique on-the-ground circumstance is daunting. It is made more challenging in a busy, chaotic everyday workplace. It is not always made clear what employers can and can’t do. The rare employer intentionally violates these laws.
Many firms underestimate the risk of a complaint or lawsuit. This leaves them vulnerable if they do not have careful systems in place and highly trained management to handle leaves in compliance with the law’s terms. A 2019 study by The Standard to explore absence management practices found that FMLA is even more litigious than the ADA, American Disabilities Act. 44% of employers report that they’ve had an FMLA-related complaint or lawsuit. Three-quarters of large firms have experienced FMLA complaints or lawsuits, while one-third of smaller employers have.
Large firms more often have trained HR professionals that are instrumental in managing staffing, absences, and compliance. Small and midsize employers may seek outside expertise and support but are often limited by their resources. Yet a complaint or lawsuit can be filed just as easily against a small employer as a large one.
As states grow and extend the reach of labor laws, they open new grievance pathways at the state level. A letter from a California employers’ coalition reveals what may be at stake. The business coalition opposed an expansion of their state family leave act, CFRA, or California Family Rights Act. This California law is primarily job protection. It works in tandem with their paid leave programs. The legislature was proposing extending it to smaller employers. The costs to employers are likely to be surprisingly high.
“A 2015 study by insurance provider Hiscox estimates the cost for a small to mid-size employer to defend a single plaintiff discrimination claim was approximately $125,000.”A PDF of the CA coalition letter can be viewed here.
With these costs at stake, it is not hard to see the advantage of resolving or settling a case regardless of its merit. A tool to mitigate these risks, EPLI insurance, employment practices liability insurance, is not always an affordable option for small and midsize firms. Because going to court is often more expensive than settling, a majority of the complaints filed are settled and dismissed. Yet rising rates of claims lead to higher premium rates. These policies are meant to cover a number of workplace employer practices that encompass other acts and laws like those overseen by the EEOC.
Upward mobility is the ultimate goal, isn’t it?
With each labor law extension comes the risk of counter-productive results
The fear of becoming ensnared in labor laws for mismanaging the treatment of employees has far-reaching consequences on hiring and promotion. Ultimately, it erodes the ease of job transitions. Over time, as employers decrease their reallocation of labor, the entire system of the labor market or job-to-job flows slows. Leaving a previous position is not the hard part. Finding a new one is. It shouldn’t be, especially in a growing economy. A litigious, government-restricted climate slows mobility and hinders opportunity.
Losing the war – how this policy scheme threatens upward mobility in the economy
One measurable outcome of barriers to labor reallocation is reflected in a reduction in job-to-job flows. The trap of being unable to escape a poor hire means more cautious hiring by employers. One unfortunate outcome is that employers will likely seek more clear information about potential hires. Many laws restrict what they can ask of candidates. This, unfortunately, creates losers – those without connections or common credibility markers like formal education.
Together these forces create a self-propelling cycle. Employees end up having fewer opportunities to move up in skill levels, move up a job ladder, or cross to different fields or careers. It becomes harder to satisfy location constraints and seek better job markets for their skills and future aspirations.3 And for those who have been displaced, it results in longer unemployment durations and/or lower real wages in post-displacement jobs.4
What we could be learning from Western Europe
There is an immense number of factors that impact the growth or relative stagnation of Europe. Efforts to understand that are made more difficult by how diverse their economies, institutions, and policies are. But a German economist even gave their growth woes a name that stuck – “Eurosclerosis.” Sclerosis, a term from medicine, refers to abnormal hardening of tissue. Applied to institutions, it suggests excessive resistance to change.
Among the policy decisions that have likely contributed, many consider the stronger labor protections that began to emerge throughout Western Europe in the late 1960s. Special interest groups have influenced their growth for decades.5 Because they rely on employment protection, many family-friendly policies and those that address “social risks,” have a significant effect. Their growth has likely contributed to dysfunction in job markets and economic stagnation.
Designed to protect workers, strict rules constrain termination in some of these countries that may involve a lengthy regulatory process to gain permission from public entities. Entrenched laws dictate firm-level management practices and suppress innovation. The result is that they threaten adaptability in periods of rapid transition like we are experiencing in today’s digital age, imposing a heavy cost on Europe’s competitiveness, the businesses, and the workers they employ. They are among the poor policies that have contributed to slower economic growth.5
The bottom line is that more balance and simplicity in labor laws would support a fluid job market, higher real wages, and better careers. A fluid job market also creates better opportunities to discover job satisfaction. What that means to individuals and families at different stages of their lives varies greatly. We must be mindful that job satisfaction goes beyond wages and the standard benefits. “Fluid labor markets yield better job-worker matching with respect to non-pecuniary characteristics.”3 Numerous research has revealed a growing shift in priorities that emphasize meaningful or purposeful work. The search for job satisfaction is deeply personal and unique to each individual.
Clear, fundamental protections that allow freedom for employers and employees to meet each other’s changing individual needs would be a more productive approach. More balanced laws would moderate what has become an overbearing threat of litigation. Unfortunately, today’s ambitious policy models like the comprehensive job-protected paid leave mandate defeat that balance and ultimately limit upward mobility.
Western Europe’s experience and should be a warning.6 Their economy continues to stagnate. But their leaders have few options. The urgent need to roll back harmful policies like worker protections is difficult to communicate. It is made harder when a voting public feels insecure and vulnerable. Every measure to mitigate overreaching labor protections in Europe has been met with resistance. The lesson is that the best policies leave us options. Once granted, these poorly thought-out labor protections like paid family leave – don’t.
For the US, today’s grand paid leave promises are likely to be today’s short-term victory, but tomorrow’s dead weight.
1U.S. District Courts. Table 4.4. Civil Cases Filed, by Nature of Suit, During the 12-Month Periods Ending June 30, 1990, and September 30, 1995 Through 2019
Footnotes and for further reading:
2Attorney Jeff Nowak has a widely recognized employment blog on FMLA topics https://www.fmlainsights.com/
His archives provide background and insights on the daily challenges for employers and human resources.
3Davis, Steven J., Haltiwanger, John (2014). Labor Market Fluidity and Economic Performance (NBER Working Paper No. 20479). National Bureau of Economic Research. https://www.nber.org/papers/w20479
“A large literature finds that employment protection laws suppress labor market flows, sometimes to a powerful extent (Blanchard and Portugal , 2001; Gómez‐Salvador et al., 2004; Boeri and Jimeno, 2005; OECD, 2010; and Haltiwanger et al., 2014).”From a summary of the above paper as a policy brief by CATO
4Martin, J. P., & Scarpetta, S. (2011). Setting it right: Employment protection, labour reallocation and productivity. De Economist, 2012, 16 (2), 89-116 https://www.iza.org/publications/pp/27/setting-it-right-employment-protection-labour-reallocation-and-productivity
5Fernández-Villaverde, Jesús and Ohanian, Lee E. (2018). The lack of European productivity growth: Causes and lessons for the U.S. Working Paper No. 18-024, PIER (Penn Institute for Economic Research). https://ssrn.com/abstract=3253254
TFP growth comes from the innovation and adoption of new technologies, business models, and managerial practices. Europe has been failing on all three fronts for the last several decades: the continent develops less economically useful technologies than other comparable economic regions, it is reluctant to allow the introduction of new business models, and it lags in the adoption of new managerial practices.From a summary of the above paper as a policy brief by CATO
6Feldstein, Martin S. (2017). Why is growth better in the United States than in other industrial countries (NBER Working Paper No. 23221). National Bureau of Economic Research. https://www.nber.org/papers/w23221
The European experiment offers a number of lessons for the United States today. European economic weakness began once institutions and policies changed. Institutional change resulted in higher taxes, much less competition (which depressed the entry of new businesses), and increased regulation of capital and labor markets.From a summary of the above paper as a policy brief by CATO