The modern American worker, the most productive and prosperous in history, lives in an increasingly transient society where extended family support networks are stretched thin or are nonexistent, where there are fewer “stay-at-home” parents, and where many single-parent families have to both make ends meet and care for young children. All of these broad societal factors contribute to the increasing sense that the quality of American family life is being diminished. This is a serious problem, and it requires a serious answer.

Member companies of Associated Industries of Massachusetts (AIM), the state’s principal employer association, recognize that the competing demands of family and work are often difficult to manage in our society. Many are attempting to fashion more “family-friendly” work environments, because they simply feel it is the right thing to do, or in order to retain employees in today’s extremely tight labor market. For example, 70 percent of AIM companies responding to our 1998-99 benefit compensation survey indicate that they offer short-term disability coverage, which can be a source of income replacement for mothers after the birth of a child. Many members are working to implement more flexible work schedules and, in fact, many already provide paid leave.

But the first step toward establishing a broader public policy supporting paid parental leave must be to abandon the absurd proposal to use the state’s unemployment insurance system to pay for such a mandate. The “Baby UI” proposal was an election-year ploy hatched in Washington, not a serious policy initiative. (Only Massachusetts, among the 50 states, came anywhere near to acting on it.) The idea was to stake out a superficially attractive but actually unworkable position, then rain invective on those who opposed it. Now that the election is over, we should leave this non-starter behind.

The Baby UI proposal was an election-year ploy.
The most obvious indication of the weakness of the Baby UI proposal was that it was supported by transparently unrealistic cost estimates, both in Massachusetts and nationally. Basically, the estimates were derived from current utilization of parental leave, even though the principal argument for paid leave is that it would allow more people to use it. Although the US Department of Labor actually tripled its national cost estimate in the course of the debate, conservative estimates by the state’s Division of Employment and Training suggest that the cost of this program in Massachusetts alone could be nearly as much as the revised national estimate of $196 million per year.

Cost is especially important because of the proposed funding source: the state’s Unemployment Insurance Trust Fund. While it is true that our trust fund balance is high presently, we should respect the integrity of the fund as a dedicated resource to pay benefits to those who have lost their jobs and are actively seeking others. The use of the UI Trust Fund for other social programs, no matter how laudable, is bad in principle because it is at odds with the historic mission of unemployment insurance. The Baby UI proposal would take funds set aside for those who are willing and able to work but don’t have jobs and divert them to people who have jobs but want to be paid while at home with a newborn or newly adopted child.

The diversion of UI funds for this purpose is also bad public policy on pragmatic grounds, because it creates a potential conflict between the interests of the unemployed and those of the employed. The trust fund was exhausted during the last recession, and could be again if times get hard, forcing a choice between benefits for unemployed workers and paid family leave for the employed. Bearing in mind that the employed always outnumber the unemployed by at least nine to one, how likely is it that elected officials would decide to sacrifice their entitlement?

As dangerous as underestimating the costs and implications of Baby UI is overestimating how far American social policy can be reshaped on the foundation of our narrowly focused unemployment insurance system. Unlike those of some other countries, which provide long-term support of individuals whose jobs are assumed to be gone forever as part of a broad social-welfare program, our unemployment insurance system is designed to provide temporary help while encouraging return to employment.

The American system has some acknowledged strengths: We get people back to work, rather than keeping them unemployed for years; we avoid the immense burden of employment taxes that plague many European nations and Canada; and, because an employment tax is a tax on jobs, we achieve far more vigorous job creation overall, especially among smaller and new employers, which could be crushed by complex requirements designed for large, established corporations. These are the foundations of our current competitiveness and prosperity, and should not be dismissed lightly.

The US can certainly re-examine its policies (as Europe is now doing), and there is nothing wrong with arguing that this country should develop a broad program of support for families. But the idea that this could be approached in a single state, through expansion of our narrow and dedicated unemployment insurance system, without a realistic analysis of potential costs, is nonsensical.

So, what can we do? Can we think about addressing what is, after all, a real social and employment issue, once we have stopped looking at the UI system as the potential foundation of a new social order, and the UI trust fund as a pot of free cash?

AIM’s first preference is generally for national solutions, which do not differentially damage the competitiveness of our state’s economy, but with no such initiative in progress, other strategies are worth considering. We are now in the process of examining the temporary disability insurance approach to paid parental leave, in consultation with insurers and with our members. Temporary disability insurance is already in wide voluntary use by Massachusetts employers, as noted earlier. A well-defined, privately operated insurance program, expanded to cover fathers as well as mothers, might provide the desired benefits in a way congruent with established employment practices, and at manageable cost.

Several industrial states have TDI policies in place, some better than others. If the general approach seems feasible, the optimum design of such a program in Massachusetts would require further study. But the course of the current debate drives home one conclusion: In the interest of transparency, it should be employee-paid. Elementary economics tells us that the costs of employment, direct and indirect, are ultimately borne by labor, whether in the form of lower wages and benefits or of fewer jobs. Real-world studies of such costs as unemployment insurance and workers compensation within the US, and comparative studies of American job creation with Europe¹s stagnant employment picture, have confirmed that this is substantially true.

If we really want to move ahead on paid parental leave, we must devise a practical plan–a plan that recognizes that there are bad times as well as good, and that without a competitive economy, no social program is sustainable. We must devise the plan together, through cooperation and compromise, because that is how we will have to carry it out. In order to provide meaningful benefits–all the time, not just in boom times–all of us will have to bear real costs, directly in dollars and indirectly in loss of flexibility in the economy. That’s where serious discussion of this serious issue starts.

Richard C. Lord is president and chief executive officer of Associated Industries of Massachusetts.

Preserve the trust in unemployment fund

By Brian Lees
Winter 2001

Massachusetts should allow for some form of paid leave for individuals who find it necessary to interrupt their jobs for family or medical reasons, such as the birth or adoption of a child or the care of a seriously ill family member.

The Commonwealth and, for that matter, the country, should move toward paid family and medical leave, a benefit enjoyed by the citizens of most other industrialized countries. The question that emerges, however, is how do the state and the private sector go about offering this benefit? In other words, how do we pay for it?

As a result of new federal regulations promulgated in 1999 allowing states to use their unemployment insurance trust funds to pay for family leave, one response to the funding dilemma has been to do just that. While I am wholly supportive of allowing the states to develop their own programs to provide such benefits, the UI trust fund should not be used for purposes other than unemployment insurance.

UI trust funds were developed during the Great Depression of the 1930s and provide unemployment benefits when businesses are forced to lay off their employees. In its analysis, Paid Parental Leave Through the Unemployment Insurance System, the National Conference of State Legislatures explains that “the nation’s UI system was designed to be a counter-cyclical economic tool that would accumulate significant reserves during good economic times, pay out benefits when businesses cut back in hard times and simultaneously stimulate a stagnant economy.²”

The temptation to raid the UI trust fund is made that much more enticing by the fund’s growing balance, estimated to hit $1.98 billion by the end of 2000. A healthy fund is indicative of a healthy economy and is a hedge against an economic downturn. One need only look back as far as the early 1990s to see a deficit in the fund. During that time, the fund was paying out more benefits than it was taking in and the Commonwealth had to pass legislation raising employer contribution rates to decrease the shortfall.

Those who advocate using the UI trust fund to pay for family and medical leave are apparently of the opinion that the fund’s balance is sufficient to provide for family and medical leave and unemployment benefits. This may be true today, but may not be true tomorrow. Events that necessitate a leave from work occur regardless of the condition of the economy. Children are born and adopted and individuals and family members fall ill in good economic times and bad. The capacity of Massachusetts businesses to provide for such benefits fluctuates with, not in spite of, the economy. More importantly, the ability of employers to maintain jobs in the first place, never mind benefits, is threatened by the possibility of recession. The fund should be protected because it protects the state’s employees.

Where does that leave us? If paid family and medical leave benefits should be established, but the UI trust fund should not be used to pay for these benefits–and by no means has agreement been reached on either of these points–what can be done?

Perhaps employers and employees should work together to develop a new and separate fund. Several states have temporary disability insurance programs that offer paid leave for medical disabilities, including maternity leave. This insurance is typically funded by employee contributions or a combination of employee and employer contributions. Studies have shown these programs to have little or no negative effect on employee productivity and a positive effect on employee morale.

Another option would be to create a new and separate program for family and medical support that is built into the Commonwealth’s operating budget, administered by the state, and funded by general revenues. This proposal may be more acceptable to the business community because it will not increase their costs. There is also the more direct approach of granting tax breaks to Massachusetts businesses in exchange for offering family and medical leave benefits, as Gov. Cellucci has proposed.

Meet the Author
Two legislative task forces are currently at work examining the funding of the Commonwealth’s unemployment insurance trust fund, as well as the feasibility of applying those funds to retraining and skill development and the establishment of a state program to provide paid family and medical leave and retirement benefits. These studies will hopefully shed some light on the various proposals for funding these benefits.

Until then, however, the state should not rush into providing paid family and medical leave, especially if it means compromising our unemployment insurance system. We should not jeopardize the very protections we have built against that which we cannot accurately predict.

Sen. Brian Lees (R-East Longmeadow) is Senate minority leader.