FORECASTIN TING T THE E ECONOMIC MIC I IMPACTS TS O OF PAID - - PowerPoint PPT Presentation

FORECASTIN TING T THE E ECONOMIC MIC I IMPACTS TS O OF PAID ID F FAMI MILY & & ME MEDICAL LE LEAVE IN IN TH THE DISTR TRIC ICT O T OF COLUMB MBIA IA

RESEARCHERS: SUSANNA GROVES & JOHN MACNEIL with JOSEPH WOLFE REMI USERS’ CONFERENCE – CHARLESTON, SC OCTOBER 26, 2017

C OUN C I L OF THE DI STRI C T OF C OLUMB I A

OFFICE OF THE BUDGET DIRECTOR | JENNIFER BUDOFF, BUDGET DIRECTOR

Backgr ground

2 Office of the Budget Director, Council of the District of Columbia

 The Council of the District of Columbia (the “Council”) enacts laws and sets policies for the District of

• Columbia. The Council is unique in that it performs the

functions of a state legislature, county council, and city council.  The Council’s Office of the Budget Director advises the body’s 13 Councilmembers on matters related to the District’s budget, analyzes the fiscal and economic impacts of proposed legislation, and performs policy analysis.  The Office of the Budget Director issued its first economic and policy impact statement on the “Universal Paid Leave Amendment Act of 2016” (UPLAA) on December 1, 2016.

Outli line o

• f Presentation
• n

 Background  D.C. Law 21-264 Universal Paid Leave Amendment Act (UPLAA) of 2016  UPLAA in comparison to other paid family and medical leave programs  Literature review: Effects on labor market, other effects  Economic impact model—discussion of variables  Economic impact model—discussion of results  Modifications to UPLAA under consideration by the DC Council

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Global al A Access t to Pai aid M d Mat aternity L Leave

4 Office of the Budget Director, Council of the District of Columbia

Access ss t to P Paid aid F Fami amily an and d Medic dical al L Leave

 In the U.S., workplace paid leave benefits are uncommon  Among private sector workers in the South Atlantic, 38% have medical leave (a.k.a. short-term disability insurance) and 14% have paid family leave  High income workers and in white collar professions are far more likely to have access to paid leave, those but the rates are still low.  In the South Atlantic, paid family leave is available to 36% of workers in finance or insurance-related occupations vs. 4% of those in accommodation and food services1  Federal Medical Leave Act (FMLA) & its local counterpart guarantee workers access to job-protected unpaid leave during a family or medical leave event.  However, 41% of U.S. workers are not covered by the FMLA  Many who are covered cannot afford to take leave when they need it2

1Bureau of Labor Statistics 2016; 2Abt Associates 2014;

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U.S.

• S. W

Workers’ s’ A Access t ss to Pa Paid id F Famil mily a and Medical al L Leave

6 Office of the Budget Director, Council of the District of Columbia

Universal al Pa Paid d Le Leave Am Amen endment A Act ct of 20 2016 6 (D.C. L Law 2 21-26 264) 4)

 The District’s Universal Paid Leave Amendment Act of 2016 took effect on April 28, 2017. It requires the Mayor to establish a public insurance program that compensates private-sector workers in the District for wages lost during a qualifying leave event.  Up to 8 weeks of parental leave to welcome a new child, 6 weeks of family leave to care for an ailing family member, or 2 weeks of medical leave to recover from a serious health condition  Replaces 90% of a covered worker’s wages up to 1.5x the minimum wage, then 50% of wages up to a maximum benefit of $1,000 per week  Funded with a 0.62% employer-paid payroll tax  The program’s design takes into account two legal factors:  The DC Home Rule Act prohibits DC from levying taxes on commuters. 68%

• f workers employed in the District are non-residents.

 The U.S. Constitution’s Supremacy Clause prohibits states from taxing the federal gvt, which employs 27% of the District’s workforce

7 Office of the Budget Director, Council of the District of Columbia

Benchma marki king: : Paid d Lea Leave P Programs i in Ot Other Juris isdictio ions ns

Me Medical Le Leave Family Le Leave Wa Wage Replacement Rate te Min. . to

• Ma
• Max. W

. Weekly Benefi fit Benefi fit Pay ayments Admin inis istrat ativ ive Expe xpense ses

DC DC

2 we weeks ks 8 we weeks ks parental, 6 6 weeks fa family 90% 90% up t to 1.5x .5x min w wage; 50% 50% thereafter $1 $1 - $1 $1,000 ,000 $238M $238M (20 2019e 9e) $40M $40M (estimated s start u up) $1 $16.662 6.662M (20 2019e 9e)

CA CA

52 weeks 6 weeks parental/family 55% $50 - $1,129 $5,419.7M $238.6M

SF SF

• 6 weeks

parental, concurrent with CA plan 100% (55% CA + 45% SF) $50 - $2,053 ($50-1,129 CA + $0-924 SF) N/A N/A

NJ

26 weeks 6 weeks parental/family 66.67% $1 - $615 $505.4M $32.5M

RI RI

30 weeks 4 weeks parental/family 4.62% of high 4/5 Qs $89 - $795 $173.4M $7.5M

NY

26 weeks 8 - 12 weeks parental/family 50% SDI: $20 - $170 PFL: 50% of NY

• avg. weekly wage

$16.681M (disability only) $4.071M (disability only)

HI HI

26 weeks

• 58%

$14 - $570 N/A

PR PR

26 weeks

• 65%

$12 - $133 N/A

8 Office of the Budget Director, Council of the District of Columbia

Benchmar markin ing: Pa Parental al/F /Famil amily L Leave W Wage R Replac acement

9 Office of the Budget Director, Council of the District of Columbia

Benchma marki king: P : Paid L Leave Programs ms in Other Juris isdictio ions ns

Funding M Mechan anism Ta Tax Rate te Taxable ble W Wage Ceili ling Tax I Inciden ence e DC DC Payroll t

• ll tax

0.62% None Emplo loyer CA CA Payroll tax 0.90% $106,742 Employee SF SF Employer pays benefit directly to worker N/A N/A Employer NJ Payroll tax 0.78% $32,600 0.5% Employer 0.28% Employee RI RI Payroll tax 1.20% $66,300 Employee NY* SDI: Private insurance with optional employee contribution PFL: Payroll tax SDI: N/A PFL: TBD SDI: N/A PFL: TBD SDI: Employer and Employee PFL: Employee HI HI Private insurance with optional employee contribution N/A N/A Employer and Employee PR PR Payroll tax 0.6% $9,000 0.3% Employer 0.3% Employer

10 Office of the Budget Director, Council of the District of Columbia

Empir piric ical Evidence: P : Paid F Family L ly Leave’s ’s E Effects on B Busin inesse sses

 Many business owners express concern that a paid leave program would raise their costs and damage productivity.1  However, academic studies show that paid family leave tends to have little impact

• n businesses’ profitability and that some may even experience some benefits

including improved morale and reduced turnover.2  Firms may absorb an increase in cost of benefits by passing along the cost to their workers through lower wages. Studies have shown that employees are willing to accept lower wages in return for benefits like flexible scheduling policies and child care.3  Firms that currently offer paid family leave benefits would be able to offset a portion of the payroll tax by shifting existing benefits onto the new public program.4

1Gomby & Pei, 2009. 2Ibid; Lerner & Applebaum, 2014; Bartel, et. al., 2015; Clifton & Shepard, 2004; Konrad & Mangel, 2000; OECD, 2007; Lerner &

Applebaum, 2014. 3Baughman et. al., 2003; Heywood, et. al., 2007. 4Applebaum & Milkman, 2006. 11 Office of the Budget Director, Council of the District of Columbia

Ward 7 8%

• 6%
• 9%
• 9%
• 9%
• 10%
• 10%
• 11%
• 13%
• 18%
• 20%
• 15%
• 10%
• 5%

0% 5% 10%

Ward 7 Ward 5 DC Ward 6 Ward 8 Ward 1 Ward 3 Ward 2 Ward 4 U.S.

Empiri rical E l Evidence: E : Effects on Labor M Market Pa Participat ipatio ion

 Paid family leave increases women’s labor market participation rate, which in turn has great influence over an area’s economic vitality.5  An additional week of guaranteed paid family leave boosted the rate at which young women were employed

• r actively sought paid employment

by about 0.60 to 0.75 percentage points.6  The odds that a woman living in the District was in the workforce were 9% lower than a man’s between 2009 and 2014 with significant variation between wards.7

12 Office of the Budget Director, Council of the District of Columbia

5 Levine, 2008; Cohany & Sok, 2007; U.S. Government Accountability Office, 2006; Elborgh-Woytek, et al., 2013; International Monetary Fund,

2016; Pack, 2014. 6Winegarden & Bracy, 1995. 7U.S. Census Bureau, 2015.

Women’s L Labor

• r F

Force P Participation

• n R

Rate R Relative t to Men, Percent Differ erence ( ence (2009 09-14) 4)

Empir piric ical Evidence: E : Effects o

• n Ge

Gend nder W Wage Ga Gap

 Narrowing the gender wage gap may combat inequality and increase economic efficiency.8  Paid leave programs reduce the gender wage gap by decreasing the amount of time women spend out of the workforce.9  Women’s access to paid leave in California was linked to a 7% higher hourly wage after childbirth.10  DC’s gender wage gap was among the smallest in the nation—12 percentage points—but still significant. Female full-time workers in DC were paid on average $8,474 less per year than their male counterparts.11

Office of the Budget Director, Council of the District of Columbia 13

$0.77 $0.79 $0.79 $0.88 $0.89 $0.93 $0.98 $1.02 $1.04 $1.12

$- $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 Ward 3 Ward 2 U.S. DC Ward 1 Ward 6 Ward 8 Ward 5 Ward 7 Ward 4 Wom

• men’s E

Earn rnings p per r $1 i in Me Men’s E Earn rnings ( (2009-14 14)

8Tzannatos, 1998. 9Lyness, et al., 1999; Schott, 2012. 10Baum & Ruhm, 2014. 11U.S. Census Bureau, 2015c.

Empiri rical E l Evidence: E : Effects o

• n Infan

ant an and d Ch Chil ild M Mortality

 Paid parental leave has been shown to reduce infant and child mortality.12  For each additional week of paid maternity leave, infant mortality falls by about 0.5 deaths per 1,000 live births.13  The District’s infant mortality rate is consistently higher than national average, and DC has among the country’s highest rates of perinatal deaths.14  Save the Children (2015) highlighted the District as an example of a city in which the overall infant mortality rate masks significant disparities between the richest and poorest households.

14

1.3 4.1 5 5.82 6.3 7.1 7.6 9.6 10.7 12.5 Ward 3 Ward 4 Ward 6 U.S. Ward 2 Ward 1 DC Ward 7 Ward 5 Ward 8

Office of the Budget Director, Council of the District of Columbia

12Heymann, et al., 2011, Winegarden & Bracy, 1995. 13Winegarden & Bracy, 1995. 14Kochanek, et. al, 2015.

In Infant Mor Mortality i in the he Distri rict of

• f Columbia b

ia by War ard, d, Deaths hs per 1, 1,000 000 B Births, 2 2014

Economic ic M Model: O Overvie iew w

15

 The model compares the REMI baseline economic forecast to REMI’s projections for the District economy if the paid family leave legislation were implemented.  The REMI model is based on the following program structure:

Office of the Budget Director, Council of the District of Columbia

Payroll Tax on Private Sector Employers in DC $254M in 2020 Benefits Paid to Program Participants $242M in 2020 Administrative Costs

(maximum 10% of revenue) $25M in 2020, plus $40M in one-time startup costs

Income Tax on Self-Employed DC Residents (who can opt-in)

UPLAA Program Fund

Employers shift existing PFL costs to UPLAA program $33M in 2020

Econom

• mic M

Model: l: REMI v I variable les

16 Office of the Budget Director, Council of the District of Columbia

REMI variable: Employer contributions to government social programs (increase) REMI variable: Employers’ production cost (increase) REMI variable: Non-compensation labor cost (increase) Payroll tax increase

Econom

• mic M

Model: l: REMI v I variable les

17 Office of the Budget Director, Council of the District of Columbia

REMI variable: Wage bill (increase) REMI variable: consumer spending (increase) REMI variable: Transfer payments (increase) Salary payment while employee takes PFL

Econom

• mic M

Model: O l: Other R r REMI v MI variable les

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 Government spending on administration of the program, IT system, outreach

 REMI variable: L : Local g governme ment s spending ( g (increa ease) e)

 Employers no longer need to provide paid family leave benefits

 REMI v variable: : Production cost f for emp mployer ers ( (decrea ease) e), ,  REMI v I variable: Wage bill f for

• r employees (decrease)

 Women more likely to participate in the labor force, as studies have shown

 REMI v I variable: Wom

• men’s labor
• r for
• rce participation
• n r

rate (increase of

• f 0.5

.5%)

 Longer family leave is associated with reductions in the infant mortality rate

 REMI v variable: Sur urvival rate for i inf nfants ( (inc ncrease o

• f 3%)

 It was not possible to quantify the following factors:

 Potential reduction in employee turnover and recruiting costs  Potential increase in labor costs if businesses need replacement workers  Non-monetary benefit of paid family leave to employees

Office of the Budget Director, Council of the District of Columbia

Economic ic M Model: T Three B Behavio ioral al R Respo ponse se S Scenar ario ios

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 To capture the range of employer responses to the increase in payroll tax, we ran the REMI model under three different employer “behavioral” response scenarios:

 Emp mployees es abs bsorb t b tax – Assumes that employers would manage the cost of the payroll tax by shifting it onto their employees in the form of eliminated or delayed salary and benefit increases.  Private-sector e emp mployer ers a absorb t tax – Assumes that employers would absorb the payroll tax into their bottom line by shrinking the size of their workforce and/or raising prices.  50/5 /50 t tax ax ab absorption – Assumes that employers would respond to the new tax by shifting approximately half

• f it onto employees and absorbing the rest.

Office of the Budget Director, Council of the District of Columbia

Economic M Mode del: I Impa pact on Gross D ss Dome mest stic ic P Produ duct ( (GDP) P)

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Predicted Impac act o

• n D

DC's G GDP, Relat lative t to B Baseli line Econ

• nom
• mic Growth (percent chan

ange, 2 2016-27 27)

Office of the Budget Director, Council of the District of Columbia

• 0.09%
• 0.08%
• 0.07%
• 0.06%
• 0.05%
• 0.04%
• 0.03%
• 0.02%
• 0.01%

0.00% 0.01% 0.02% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Change in DC's GDP, relative to baseline growth

Businesses absorb tax Employees absorb tax Hybrid scenario

The cumulative 10 year impact of the implementing proposal on the District’s GDP ranges between a slight increase of $15 million (+0.01%) to a slightly larger decrease of $122 million (-0.08%). Again, the model predicts that GDP will decline in 2019 and rebound in 2020 as the stimulating effect of introducing the spending of benefits counteracts the negative impact of the payroll tax.

Economic ic M Model: I Impac act o

• n Priv

ivat ate S Sector E Empl ployme ment

21

Predicted Imp mpact o

• n D

DC's 's Private S Sector E Emp mployme ment, , Relat lative t to B Baseli line Growth ( (201 016-27 27)

Office of the Budget Director, Council of the District of Columbia

(1,600) (1,400) (1,200) (1,000) (800) (600) (400) (200)

• 200

400 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Change in DC's employment, relative to baseline job growth

Businesses absorb tax Employees absorb tax Hybrid scenario

If businesses absorb the payroll tax, the model forecasts that the economy would support approximately 1,300 (0.21%) fewer jobs by 2027. 1,300 is about the number of jobs that the District typically adds in 6 weeks. If the payroll tax incidence falls on employees, the model predicts that the economy would support approximately 90 (0.01%) fewer jobs by 2027. 90 jobs is equal to about three days of average job growth. Model predicts that employment will decline in 2019 and rebound in 2020 as the stimulating effect of introducing the spending of benefits counteracts the negative impact of the payroll tax.

Economic M Mode del: Pr Predicted d Jo Job Mig igration to M MD an and V d VA/W /WV

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 If the payroll tax’s incidence falls only on businesses, the District would transfer 0.21% of its private sector employment to the surrounding jurisdictions.  If employees end up absorbing the tax through lower wages, the model forecasts virtually no job migration.

Office of the Budget Director, Council of the District of Columbia

• 0.25%
• 0.20%
• 0.15%
• 0.10%
• 0.05%

0.00% 0.05% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 DC Employment MD Employment VA/WV Employment

• 0.25%
• 0.20%
• 0.15%
• 0.10%
• 0.05%

0.00% 0.05%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 DC Employment MD Employment VA/WV Employment

Economic M Mode del: M Main ain T Tak akeaways

 Although imposing a 0.62% payroll tax is not insignificant, implementing the proposed legislation is likely to have a minimal impact on the District’s labor market and economy over a ten-year period (2016-2027).  Some employers and industries might experience the impacts of the proposed legislation more sharply than others. However, it is unlikely to alter the current upward trajectory of the District’s economy.

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Baseli line Fo Forecast (no P

• Paid

id L Leave) Emplo loyees Absorb rb Ta Tax Emplo loyers Absorb rb Ta Tax Hybr brid Scenar ario GDP GDP, Di District o

• f

Colu lumbia, a, 2 2027 $152.1 billion GDP will increase by $15 million GDP will decrease by $122 million GDP will decrease by $46 million Privat ate S Sector

• r

Emp mployme ment, , Distr trict o t of Colu lumbia, a, 2 2027 621,000 jobs Employment will decrease by 90 jobs Employment will decrease by 1,300 jobs Employment will decrease by 500 jobs

Su Summary o

• f UPL

PLAA's F Forecasted Cu Cumulative I Impacts o

• n DC'

C's E Economy, 2 2027

Other P r Poli licy A y Approa

• aches

 The Council is considering several bills that would modify the law to change the funding and benefit delivery system.  The Budget Office released a memo on October 9, 2017 analyzing the three approaches to providing paid family leave:

 Public insurance program  Mandate on employers to privately pay for and deliver benefits  Hybrid--public insurance program for small businesses and mandate for large employers

24 Office of the Budget Director, Council of the District of Columbia

Economic an and d Policy I Impac pact St Statement: Co Contac act

Jennifer Budoff, Budget Director, jbudoff@dccouncil.us Key Staff:  Susanna Groves, Senior Budget Analyst, sgroves@dccouncil.us  John MacNeil, Senior Budget Analyst, jmacneil@dccouncil.us  Joseph Wolfe, Senior Budget Analyst, jwolfe@dccouncil.us Copies of the full report and supporting documents can be found at: http://lims.dccouncil.us/Legislation/B21-0415 and http://dccouncil.us/news/entry/budget-office-analysis-of-universal- paid-leave-bills

25 Office of the Budget Director, Council of the District of Columbia