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IHS ECONOMICS

The Impact of FMLA Expansion on the
Greater Washington Economy
Fiscal Analysis

Consulting Report

ECR | January 2016
James Diffley
Sr. Director, Consulting
Brendan O’Neil
Director, Consulting
James Gillula
Director, Consulting
Karen Campbell
Senior Consultant

IHS Economics | Greater Washington Board of Trade FMLA Analysis

Table of Contents

INTRODUCTION ............................................................................................................................... 2
COMPARATIVE ANALYSIS ................................................................................................................ 3
PAID FMLA IN DC............................................................................................................................. 3
COMPARATIVE DEMORAPHICS ....................................................................................................... 4
TAX REVENUE METHODOLOGY....................................................................................................... 4
TAX REVENUE .................................................................................................................................. 6
EXPENDITURE METHODOLOGY....................................................................................................... 7
FISCAL CONCLUSIONS ..................................................................................................................... 9

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

INTRODUCTION
Purpose
A bill in the Council of the District of Columbia, “The Universal Paid Leave Act of 2015”, would
establish a mandatory system of paid family and medical leave for employees and residents in
the District of Columbia. The paid leave would be financed by a tax on employers and
individuals of up to 1.0% of wages and salaries earned. Paid leave would be made available to
employees for their own disability and for the purpose of caring for other family members who
are in need, including newborn children and aging parents, amongst others. Paid leave would
be available for up to 16 weeks in a year at rates as high as $3,000 per week depending upon
income.
The purpose of this study is to estimate the fiscal impact of this program. The economic impacts
are expected to be extensive as the program imposes a significant new tax on area businesses
and workers as it provides a new benefit to workers and residents in the District.
In this report, we compare the program to other existing state programs, and calculate the
fiscal impact on District revenues and expenses due to implementation of the Paid Leave Act.

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

COMPARATIVE ANALYSIS
Three other US states, California, New Jersey, and Rhode Island, have paid family leave policies,
“paid FMLA”, in place. In each of these cases the paid FMLA exists in conjunction with other
state disability insurance programs, which only exist in a few other states, and not in the
District of Columbia. Rhode Island’s program is in its first year and we exclude it from the
discussion as comparative data is not yet available.
In California, an employee’s paid leave under its Disability Insurance program is funded by a tax
on wages of 0.9% up to $939.40 (or an annual income level of $104,378). The weekly benefit
amount varies from $50 to $1,104 depending upon income. There is no limit to the number of
weeks of leave. The average weekly benefit amount in 2014 was $479 and California paid
$4.515 billion for 633,586 claims.
In New Jersey, Temporary Disability is available for an injured employee for up to 26 weeks in
any year, paid at 2/3rds the employee’s average weekly wage up to a maximum of $604 per
week ($615 in 2016). The average weekly benefit was $437 and 2014 payments totaled $422.7
million on 93,889 claims. The average duration per leave was 71 days. Also, New Jersey
employers can alternatively provide a private plan.
In New Jersey eligible claims comprised 3.6 percent of covered employment in 2014, while the
percentage in California was somewhat higher, near 4.0%. Both states disallow claims to
workers also covered by unemployment compensation. In California, New Jersey, and Rhode
Island the maximum length of family leave per year is six weeks. In California, the maximum
weekly benefit is $1,075; it is $575 in New Jersey. Otherwise, the conditions on usage are
similar as regards qualifying events, family eligibility, and administrative approval.
In California in 2014 there were 215,830 claims for paid family leave, with a total payout of
$554.1 million. In New Jersey there were 31,715 claims totaling $83.8 million in payments.
Filing information from the states indicates that 81% of the claims were for maternity care.

PAID FMLA IN DC
Generally, the bill establishes the program for all DC residents regardless of where they work,
and for non-resident employees of firms in the District. The bill excludes employees of the
District of Columbia government, who already have a paid leave with the government as their
employer. In addition the bill excludes the US federal government as a covered employer,
though under our interpretation the bill includes federal government employees as covered
individuals. Self-employed individuals can opt-in to the program by making the necessary
corresponding tax payments.
The payments under the leave would equal 100% of wages up to $1,000 per week. For higher
wage-earners payments of an additional 50% of wages above $1,000 per week are available up

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

to a maximum weekly benefit of $3,000 per week. For example, a worker who earns $2,000 per
week would receive leave benefits of $1,500 per week.

COMPARATIVE DEMOGRAPHICS
Due to the importance of maternity care as the leading driver of leaves and benefit utilization,
it is important to understand the unique demographics of DC versus those of New Jersey and
California. There were approximately 10,000 births in DC in 2014 versus 104,000 in NJ and
513,000 in CA. But as a percentage of the population, this birth rate was 13% higher than that
in CA and 29% higher than that in NJ. This difference is not a function of the fertility rate of
females, which is the fraction of births over the number of women of child-bearing age, but
rather of the younger population, generally, in DC.
For similar reasons the elderly (65+) share of the population in DC is 12% less than in CA and
29% less than in NJ. These differences in demographics are expected to drive comparative
differences in family leave utilization and will be used in the expected expenditure
methodology.

TAX REVENUE METHODOLOGY
The Universal Paid Leave Act would impose a tax rate of from 0.5% to 1.0% on wage incomes
above $10,000 annually. Wage income above $10,000 up to $20,000 is taxed at 0.5%, then up
to $50,000 at 0.6%, to $150,000 at 0.8%, and at 1.0% for higher income. Using published
statistics of income from the Internal Revenue Service or from the DC government, it is
straightforward to calculate the following tax distribution for all DC residents (at 2013 income
levels):
Taxpayer Wage Income
$0.01 Under $10,000
$10,000 Under $20,000
$20,000 Under $30,000
$30,000 Under $50,000
$50,000 Under $75,000
$75,000 Under $100,000
$100,000 Under $150,000
$150,000 Under $200,000
$200,000 Under $500,000
$500,000 Under
$1,000,000
$1,000,000 and Over
Total

© 2016 IHS

Returns

Wage Total

FMLA
Tax

32,121
40,327
34,299
56,817
44,149
26,105
23,782
11,227
13,820

373,224,642
782,285,562
1,235,547,010
2,444,220,452
3,343,011,971
2,262,515,018
2,797,663,842
1,785,293,299
3,370,612,459

0
0.005
0.006
0.006
0.008
0.008
0.008
0.01
0.01

0
1,895,078
5,012,352
10,688,133
19,238,766
13,662,270
18,338,371
12,576,243
27,210,725

0
0.24%
0.41%
0.44%
0.58%
0.60%
0.66%
0.70%
0.81%

1,661
776,104,776
583
769,124,208
284,891 19,939,603,239

0.01
0.01

6,980,378
7,417,232
123,019,547

0.90%
0.96%
0.62%

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Revenue

Average
Rate

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

In this example 284,891 DC resident wage earners would pay $123.0 million into the FMLA fund,
at an average tax rate of 0.62%, or $372 per employee.
Amongst DC residents, those who work for the DC government will be excluded under the Act.
We need to add the non-residents employed in DC, and the self-employed who may opt-in.
Employment and income data for these groups are available from the Census’ American
Community Survey, illustrated below.
Employed District of Columbia Residents by State of Job
Location: 2014
Private Sector

Total
District of Columbia
Maryland
Virginia
All Other Locations

Total
344,490
258,270
43,038
39,391
3,791

Total
263,565
196,218
32,575
31,159
3,613

SelfEmployed
23,271
19,364
1,861
1,414
632

Employees
240,294
176,854
30,714
29,745
2,981

Total
100.0%
100.0%
100.0%
District of Columbia
75.0%
74.4%
73.6%
Maryland
12.5%
12.4%
12.8%
Virginia
11.4%
11.8%
12.4%
All Other Locations
1.1%
1.4%
1.2%
Source: IHS tabulations of 2014 American Community Survey data

Federal
Government
54,060
42,293
6,707
4,943
117

100.0%
83.2%
8.0%
6.1%
2.7%

100.0%
78.2%
12.4%
9.1%
0.2%

State & Local
Government
26,865
19,759
3,756
3,289
61
100.0%
73.5%
14.0%
12.2%
0.2%

District of Columbia Employment by State of Residence of Workers: 2014
Private Sector

Total
Maryland
District of Columbia
Virginia
Pennsylvania
West Virginia
All other

Total
811,535
314,796
258,270
223,246
2,400
1,098
11,725

Total
542,049
202,192
196,218
134,295
688
367
8,289

Employees
498,219
188,104
176,854
125,105
631
284
7,241

Total
100.0%
100.0%
100.0%
Maryland
38.8%
37.3%
37.8%
District of Columbia
31.8%
36.2%
35.5%
Virginia
27.5%
24.8%
25.1%
Pennsylvania
0.3%
0.1%
0.1%
West Virginia
0.1%
0.1%
0.1%
All other
1.4%
1.5%
1.5%
Source: IHS tabulations of 2014 American Community Survey data

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SelfEmployed
43,830
14,088
19,364
9,190
57
83
1,048
100.0%
32.1%
44.2%
21.0%
0.1%
0.2%
2.4%

Federal
Government
217,384
88,046
42,293
81,901
1,113
661
3,370
100.0%
40.5%
19.5%
37.7%
0.5%
0.3%
1.6%

Local
Govt
52,102
24,558
19,759
7,050
599
70
66
100.0%
47.1%
37.9%
13.5%
1.1%
0.1%
0.1%

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

Wage Distribution of Workers in the Covered Population, 2014
Employed in DC

Total DC
Jobs

DC
Resident

Not DC
Resident

DC
Resident
Working
Outside DC

554,042
41,478
41,859
162,656
248,722
59,327

228,812
23,079
17,545
67,250
96,887
24,051

325,230
18,399
24,314
95,406
151,835
35,276

73,682
5,109
5,826
20,235
36,082
6,430

Distribution of Persons with Wage & Salary Income
Total
100.0%
100.0%
$1 - $9,999
7.4%
7.5%
$10,000 - $19,999
7.6%
7.6%
$20,000 - $49,999
29.1%
29.4%
$50,000 - $149,999
45.4%
44.9%
$150,000 or more
10.5%
10.7%

100.0%
10.1%
7.7%
29.4%
42.3%
10.5%

100.0%
5.7%
7.5%
29.3%
46.7%
10.8%

100.0%
6.9%
7.9%
27.5%
49.0%
8.7%

Average Wages & Salary by Income Category
$1 - $9,999
$4,522
$4,493
$4,249
$10,000 - $19,999
$13,976
$13,987
$14,095
$20,000 - $49,999
$34,216
$34,210
$33,945
$50,000 - $149,999
$83,950
$84,034
$86,276
$150,000 or more
$255,575 $261,153
$240,749
Source: IHS tabulations of 2014 American Community Survey data.

$4,798
$13,910
$34,397
$82,604
$275,064

$4,761
$13,896
$34,258
$83,367
$204,113

Total
Covered
Persons with Wage & Salary Income
Total
627,724
$1 - $9,999
46,587
$10,000 - $19,999
47,685
$20,000 - $49,999
182,891
$50,000 - $149,999
284,804
$150,000 or more
65,757

TAX REVENUE
The graduated tax rate schedule applied to DC residents 2013 income yielded revenues of $123
million. Using IHS economic forecasts for DC employment and income, we calculate that the tax
revenue from DC residents for 2016 income would be $145.7 million. This estimate also
includes the participation of self-employed residents. In that case we assume that those with
incomes of less than $100,000 per year will be motivated to opt-in individuals, otherwise the
tax rate is seen to be too high for participation.
Further adjustments are necessary to derive the ultimate expected revenue for 2016; the tax
rate schedule is applied to the distributions in the tables above:
Subtract DC government employees
Add non-resident employees

-$7.1 million
+199.6 million

This yields total projected 2016 revenue of $338.3 million.

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IHS Economics | Greater Washington Board of Trade FMLA Analysis

EXPENDITURE METHODOLOGY
The Universal Paid Leave Act would allow employees to take up to 16 weeks of paid leave to
take care of an employee or family medical issue. Unlike the revenue analysis, there is much
uncertainty as to how much leave would actually be claimed and taken. For this reason we will
provide different scenarios of the ‘uptake’ under different assumptions.
First, the Labor Departments of California and New Jersey do provide significant data on their
uptake rates. One notable piece of experience is that maternity leave accounts for slightly more
than one-quarter of individual disability and approximately 80% of the paid family leave cases.
The tables below describe the covered female population under the Act. Here you see 8,800
covered births in 2014. At 16 weeks of maternity leave per birth at average weekly benefit of
$1173 (derived from ACS data on female wages) implies $165.2 million in costs. If this is 80% of
the total paid leave this implies total costs of $206.4 million. IHS expects the number of births
to increase to 10,000 in 2016, and with wage growth total costs would equal $278.0 million.

Among Female Workers in the Covered Population, 2014
Employed in DC
DC
Resident

Not DC
Resident

DC
Resident
Working
Outside DC

Gave birth to a child within
the past 12 months
8,849
8,115
4,679
Share of all female workers
2.8%
2.9%
3.8%
Source: IHS tabulations of 2014 American Community Survey data.

3,436
2.2%

734
1.9%

Total
Covered

© 2016 IHS

Total DC
Jobs

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Female Workers in the Covered Population, 2014
Employed in DC
Total
Covered

Total DC
Jobs

DC
Resident

Not DC
Resident

DC
Resident
Working
Outside DC

21,629

19,214

8,183

11,031

2,415

41,977

38,801

12,537

26,264

3,176

13,270
238,296

12,555
206,349

3,821
99,552

8,734
106,797

715
31,947

Share of all female workers
100.0%
100.0%
100.0%
Females with own children
under 6 years only
6.9%
6.9%
6.6%
Females with own children
6 to 17 years only
13.3%
14.0%
10.1%
Females with own children
under 6 years and 6-17 years
4.2%
4.5%
3.1%
Females with no own
children
75.6%
74.5%
80.2%
Source: IHS tabulations of 2014 American Community Survey data.

100.0%

100.0%

7.2%

6.3%

17.2%

8.3%

5.7%

1.9%

69.9%

83.5%

Females with own children
under 6 years only
Females with own children 6
to 17 years only
Females with own children
under 6 years and 6 to 17
years
Females with no own children

Family Leave
An alternative methodology is to directly use reported claims data from New Jersey, adjusting it
for the size of the covered population and for the benefit differences. Covered employees in DC
are 19% of the NJ base. All things equal, DC benefits would be expected to be 19% of that in
New Jersey. But the DC Act will allow longer leaves, at higher levels of benefits, and we know
that DC has a higher effective birth rate.
Applying each of these factors to the 2014 NJ expenditure of $83.8 million results in projected
2016 expenditures in DC of $227.8 million.
Similarly, adjusting California’s reported payments of $554.1 million results in DC projections
for 2016 of $310.1 million. This estimate, reflecting the California experience, is close to that
derived from DC data above. As a result we conclude that it is the best projection of the Plan
costs for prudent planning purposes.

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Individual Disability
As noted above, covered employees in DC are 19% of the NJ base. All things equal, DC benefits
would be expected to be 19% of that in New Jersey. Unlike the case of family leave, the DC Act
allows for shorter leaves, but at higher levels of benefits. The same is true of California state
disability.
Adjusting for the higher expected weekly benefits under the DC Act, and assuming comparable
lengths of leaves to the 2014 NJ expenditure of $423 million, results in projected 2016
expenditures in DC of at least $233 million. Note, however, that strict enforcement in NJ results
in 28% of claims being rejected. Without an administrative commitment to discipline false
claims and to limit leave times to less than 16 weeks where appropriate, the annual cost to DC
could soar to $391 million. Similarly adjusting California’s reported payments of $4,515 million
results in DC projections for 2016 of $719 million.
California has higher costs per capita than New Jersey for two reasons. First, its monthly
payment is higher as described above. Second, the allowed length of time is longer. California
reports an average leave length of over 15 weeks, which implies that a large fraction of leaves
extend beyond the 16 week limit that DC would allow. We assume that even though the
number of exercised leaves exceeding 16 weeks in California is much less than half, the
number of weeks of leave that generate payments is very near half. For that reason, the
simulated usage in DC derived from the California experience would be conservatively one-half
of $719 million, or $360 million. Moreover, the existence of the individual leave program is
likely to increase labor force participation in the area, by as much as 5% according to some
estimates. In that case, the total cost to the District could reasonably be anticipated to be $411
million in 2016.

FISCAL CONCLUSIONS
The Universal Paid Leave Act would impose taxes which we estimate with high degree of
confidence to be near $338 million in 2016. There is considerably more uncertainty surrounding
the projection of costs under the Act. The utilization of paid leave under similar programs in
New Jersey and California serves as a reasonable and appropriate proxy upon which to derive
an estimate, but the proposed DC benefits are considerably more generous than those of the
other states, leaving no direct experience to rely upon in estimating the use of leave under
these conditions. We have estimated 2016 family leave expenditures of $310 million and
individual employee leave expenditures of $411 million. In this analysis we have made fiscally
conservative assumptions to project expenses. We do conclude that the contributions, totaling
$338 million, specified in the Act are not sufficient to meet expenses, projected in our estimate
to be near $721 million, for a shortfall of $383 million. Contributions would need to be more
than doubled, an increase of 113%, to meet this expenditure.

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