Putting my actuary hat on: the Rubio-approved family leave proposal

Last updated on: February 8, 2018 at 7:06 am by Jane the Actuary

Putting my actuary hat on: the Rubio-approved family leave proposal 2018-02-07T23:07:56-06:00 Jane the Actuary

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Something that caught my attention via twitter today: a proposal for a new way forward on parental leave, put forth by a group called the Independent Women’s Forum, in a report called, “A Budget-Neutral Approach to Parental Leave.”

The core of their idea is this: as a means of providing parental leave without adding to the budget, we could allow new parents to “borrow” against their Social Security, that is, by “purchasing” leave time now and “paying for it” by deferring retirement an appropriate length of time. The value of the benefit check wouldn’t be calculated based on the 35 year average earnings, as in “regular” Social Security but, acknowledging the young age of new parents, it would be based on the Social Security Disability formulas, using average indexed earnings-to-date instead. The benefit, like all Social Security benefits, would likewise not be knock-your-socks-off generous, but would be a reasonable-ish sum of money, and would actually be roughly comparable to the benefit rates of the United Kingdom and Canada.

This proposal is attractive for a couple reasons.

In the first place, I give it lots of credit for truly attempting to come up with a new idea. Even to the extent that they miss the mark, it’s still something different than the succession of proposals which imagine that we can fund parental leave by just taxing the “millionaires and billionaires” more.

And, secondly, it addresses one of the difficulties with, well, life stages. When we’re young and starting our families, we’re at the start of our earning years, and at the same time, trying to figure out how to make do with one income for the length of a maternity leave, or indefinitely, for stay-at-home parent families, or afford child care, for dual-income couples. Then when we’re older, and have higher incomes and have saved more money, we don’t need it in the same way. Well, OK, fine, we still need it — to send the kids off to college and fund our retirement — but you know what I mean; it’s why grandmothers end up babysitting their grandchildren one generation after the next, because they’ve reached the age at which they can retire from paid work but don’t “need to” in terms of their physical and mental ability level. And, even with Social Security Normal Retirement Age climbing to 67 for my generation, most people do still reach retirement age in good health and could reasonably postpone retirement for a half-year with fewer ill-effects from that extended working lifetime than they would suffer in making-do with an income loss during a parental leave, or with a very rapid return-to-work. In a way, this is a a form of borrowing, and, as with any such loan, there’s always a risk that you won’t be able to pay it back — in this case, a risk that you won’t be able to “pay back” the time-borrowing, if you’re in ill-health or just unemployed.

Now, the proposal was first made in January, but only on Sunday did Politico report that Marco Rubio and Ivanka Trump like this idea, which led to a torrent of articles by progressive groups and individuals criticizing the proposal: ThinkProgress, Social Security Works, and Elizabeth Bruenig, writing in the Washington Post that the plan would “punish those who choose to have kids,” as the headline states. Why “punish”? Certainly it’s an improvement on the status quo, insofar as there is no such flexibility in Social Security at the moment. The program would be purely voluntary, so it’s hard to see the source of the harm — except that, reading between the lines, these authors may perceive there being momentum towards a state-funded parental leave benefit, and fear that such a program would blunt such momentum; that is, they imagine that a Social Insurance-type parental leave program is inevitably part of our future, and the “borrow from Social Security” proposal would take away this program that we are otherwise destined to have.

Bruenig also is upset that such a program fails to acknowledge the benefits that raising children provides to society, and treats it as something that’s purely a personal matter, a hobby no more worthy of government support than woodworking or home brewing. And the issue of how much support the government should provide families is a messy one, and connected up with all sorts of issues: should parents who believe state schools are not the right choice for the children’s education be given any support? Should the government provide any support for the everyday costs of child-rearing? And there are, on the other hand, a fair contingent who say that children are nothing other than a net cost unfairly imposed on society by “breeders,” and who suggest that individuals who choose to reproduce bear the moral responsibility for the carbon dioxide emissions of all future generations to come.

But that’s neither here nor there, because my larger gripe is a purely actuarial one, or rather, that of an utter lack of actuarial considerations. The report’s author suggests that, because the parental leave benefits would be based off of a lower salary than the ultimate future Social Security benefits, individuals who make use of this proposal would be able to take roughly 12 weeks of leave now, at a cost of a retirement deferral of only 6 weeks. But this is true only in an imaginary world in which there is no discounting back for interest and where there is a significant career pay increase history over and above inflation. Now, the author doesn’t provide any support for their “get 12 weeks for the price of 6” estimate, which I match assuming that the replacement percentages are the same, and that the real (on top of inflation) salary increase is about two percentage points higher than the real (on top of inflation) interest rate — not a realistic scenario. And maybe they have some philosophical reason to ignore interest, but in such a case, it’s necessary to provide the rationale.

So it’s a clever idea, but it’s unfortunately too good to be true.

Image: https://commons.wikimedia.org/wiki/File%3AHOUSEWIFE_IN_THE_KITCHEN_OF_HER_MOBILE_HOME_IN_ONE_OF_THE_TRAILER_PARKS._THE_TWO_PARKS_WERE_CREATED_IN_RESPONSE_TO…_-_NARA_-_558298.jpg; By Villalobos, Horacio, Photographer (NARA record: 8464479) (U.S. National Archives and Records Administration) [Public domain], via Wikimedia Commons

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