NCPA - National Center for Policy Analysis

Tapping Unemployment Insurance Trust Fund To Pay Family Leave

September 14, 1999

Six years after the passage of the Family and Medical Leave Act (FMLA) established unpaid leave for parents of newborn or newly- adopted children, the Clinton administration has launched a national campaign to fund paid parental leaves through the Unemployment Insurance (UI) system.

The UI system is a joint federal-state program -- funded by employers' federal and state payroll taxes -- to alleviate financial hardship for the unemployed by providing partial wage replacement.

But analysts at the Employment Policy Foundation warn that severe recessions can quickly deplete the fund. For instance, the 1980-82 recession forced 33 states to borrow over $20 billion from the federal government, and the federal account went bankrupt in 1977 -- resulting in a .2 percent surcharge to the federal unemployment tax which is still in effect today.

Furthermore, the Department of Labor predicted just last year that a recession similar in magnitude to the one of the early 1980s would force 25 to 30 states to borrow $20-25 billion.

  • EPF estimates that Clinton's proposal could cost the UI system, at a minimum, an additional $14.4 billion annually -- assuming some six million parents would be eligible for the paid leave.
  • If paid leave is extended for 26 weeks, EPF estimates that the cost to the UI system could rise to $31.2 billion.
  • If it gives all FMLA leave takers and those with leave needs access to UI payments, EPF estimates this could increase the eligible population to 24.6 million individuals, and could cost $59 billion annually to fund leaves of 12 weeks.
  • Covering leaves of 26 weeks inflates the potential cost to a whopping $127.7 billion annually.

Thus, adding the new entitlement to the UI system jeopardizes its ability to pay benefits to the unemployed in the next recession.

Source: "Paid Parental Leave: A $14 Billion to $128 Billion Entitlement," Economic Bytes, September 10, 1999, Employment Policy Foundation, 1015 15th Street, N.W., Suite 1200, Washington, D.C. 20005, (202) 789-8685.


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