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Families Valued

Creating a twenty-first-century social insurance system for today’s “juggler families.”

By Karen Kornbluh

Tagged EntitlementsSocial Security

In his 1985 book Family and Nation, the late Senator Daniel Patrick Moynihan wrote, “No government, however firm might be its wish, can avoid having policies that profoundly influence family
relationships. This is not to be avoided. The only option is whether
these will be purposeful, intended polices or whether they will be
residual, derivative, in a sense, concealed.” As Moynihan knew,
government policies have real effects on the lives of families,
producing often unintended consequences. Sometimes this is the result,
as Moynihan implied, of policymakers not fully understanding the scope
of their actions. But, just as often, it can be the result of changing
patterns within the American family itself. Indeed, over the past
generation the American family has changed dramatically, but the
policies designed to mitigate the risks it faces have remained frozen
in time, many of them operating on rules developed in the midst of the
Great Depression. As a result, the most vulnerable families in the new
economy all too often wind up with limited protection in times of need.

Recent efforts to fashion policies to respond to the strains on
modern families have focused, for the most part, on providing
job-protected leave to help balance work and family responsibilities.
After years of partisan wrangling, President Bill Clinton signed the
Family and Medical Leave Act (FMLA) in 1993; since then, progressives
have focused on expanding the FMLA to more workers, allowing workers to
take time off to attend school activities and doctors’ appointments,
and providing workers with sick leave for their own or a relative’s
illness.

The FMLA, though overlooked by many opinion-makers, was a
breakthrough in updating the American social contract for today’s
families. It amended the Fair Labor Standards Act of 1938 to allow
workers to take time off to care for a new child or a sick relative
without losing their jobs. Clinton realized its impact; it was the
first law he signed, and he mentioned it in every State of the Union.
But the ability to take time away from one’s job, while a critical
component of modern family policy, is not comprehensive. To give
families the security they need to raise healthy, productive members of
society, we need also to address the financial risks parents incur just
for being good parents–when they take time out of the workplace,
require a flexible schedule to raise children, or get hit with high
health care or child care expenses.

For this, progressives should turn to one of the most important
innovations of the last century: social insurance. In the 1930s,
progressives established a suite of social insurance schemes to help
families share the risks of the industrial economy: the risks
associated with the inability of the breadwinner to earn the family
income because of old age, death, a temporary layoff, or disability.
These social insurance programs continue to provide families essential
support. But today we need to create new elements in the social
insurance system–as well as reform the protections now in place–to
confront the new risks families face. Our current social insurance
system–a patchwork of programs put in place over the course of
decades–was designed to help nuclear families in which a breadwinner
worked one job his entire career while the homemaker cared for the
children and any ill relatives. Today’s American family and today’s
workforce are markedly different. Both two-earner and single-parent
families operate in a volatile, winner-takes-all economy; families
often are expected to raise a younger generation and care for an older
one, while saving to prepare for the current one’s future; and workers
at all skill levels face a career of increased mobility and volatility.

Contrary to what conservatives have argued, Americans do not need to
replace social insurance with some version of the private accounts of
President George W. Bush’s Social Security plan. Rather, they need a
way to continue sharing the all-too-real risks families bear as parents
across the country attempt to raise kids in a new economy that provides
them no margin for error. This should be the central goal of our social
insurance system in the twenty-first century.

The Changing American Family

Families in the early twentieth century lived in a transformative
period and confronted new challenges analogous to those we face today.
In a quickly urbanizing and industrializing society, old patterns of
life were breaking down. Many families had left agricultural lifestyles
for wage labor in cities, making them dependent on a single
breadwinner’s earnings. Extended family networks, capable of providing
additional economic support for individuals in times of need, were
replaced by the rise of the nuclear family. Better public health and
health care had increased the lifespan of Americans by ten years from
1900 to 1930.

President Franklin D. Roosevelt responded to these changes, as well
as the exigencies of the Great Depression, by creating a series of
policies to soften the rough edges of the industrial economy for
workers and their families. In addition to employment innovations like
the creation of the minimum wage, the 40-hour workweek, and the ban on
child labor, he also created a system of social insurance to guard
against “the hazards and vicissitudes” of life in the new economy.

Social insurance programs had precedents both at home, where there
had been a national system of Civil War pensions, and in Europe, dating
back to Bismarck’s Germany. While governor of New York, FDR had
implemented the first comprehensive system of unemployment relief and
an extensive program for industrial welfare. Roosevelt sought a similar
program for the entire nation. The result was the Social Security Act
of 1935, centered around old age and unemployment insurance (UI)
programs to prevent catastrophic drops in families’ income resulting
from old age, widowhood, or cyclical downturns (Disability insurance
was added in 1956).

From its beginning, the system combined two competing strands:
earnings-based benefits and benefits designed purely to keep families
afloat. Social Security’s old-age program keyed individual benefits to
lifetime earnings, but the benefit structure was progressive:
Lower-income workers received relatively more per dollar earned, while
higher-income workers received relatively less. In 1939, before it
began paying out benefits, Social Security was changed to provide a
spousal benefit–married couples would receive 150 percent of the
benefits of a single worker with the same earnings–and a survivor’s
benefit for dependent children and spouses. In addition, the Social
Security Act contained Aid to Dependent Children, designed to provide
aid to needy single-parent households. The family benefits became a
central feature of the Social Security program. Even today, the
National Women’s Law Center finds 50 percent of people receiving Social
Security benefits actually collect these benefits as either a widow or
widower, spouse or child of a worker, or a disabled worker–rather than
as an individual receiving Social Security benefits based on his or her
employment history.

The system was, of course, built around the American family and
social assumptions of that particular time. The Social Security family
benefits went to spouses, whether they had children or not, because in
the 1930s most mothers were in fact wives and only 15 percent of
married women were in the paid workforce (and even then they were under
pressure to leave to make way for male breadwinners). Wives were
ineligible for the benefit unless they remained married for a fixed
amount of time, in an attempt to prevent women from marrying just for
benefits. Even if a former spouse was entitled to a benefit after
divorce, it was less than what the worker received, because it was
thought that a woman living alone could survive on less than a man (one
participant in the debates at that time argued that a woman could do
her own housekeeping, while a man would have to eat in restaurants).
Single women were assumed to be widows and expected not to work; Aid to
Dependent Children provided help to these women as long as they were
not married and did not work. To ensure that funds benefited only those
with a strong labor-force attachment (not women working for “pin
money”), Social Security benefits were keyed to lifetime earnings, and
UI eligibility was tied to past work history and whether the worker was
seeking full-time employment. Moreover, Social Security’s old-age
program, Unemployment Insurance, and later Social Security Disability
Insurance, were designed for manufacturing workers who would spend 40
hours a week for 40 years working for a single employer; as a result,
the programs covered only income interruptions associated with
retirement, temporary layoffs, and, later, disability.

The system worked well for the families for whom it was originally
designed, keeping the wolf from the door even when an assembly line
closed, an injury occurred, or the breadwinner grew too old to work in
the mill. As a result of the old–age insurance program, the official
poverty rate for people age 65 and over dropped to 10 percent by 2003,
from 35 percent in 1959 (the first year the federal government kept
records using a standardized measure of “poverty”). And Social Security
is still enormously important to America’s elderly; it accounts for
about 90 percent of total income for both men and women ages 65
and older. It allowed people to start new companies or switch jobs
knowing that if the business failed, their families would not be
destitute. The system of social insurance has, in short, been one of
the most successful government initiatives ever undertaken,
demonstrating how Americans can act together to improve the lives of
all citizens.

The Rise of Juggler Families

That, however, was then. Today, as years of newspaper stories on
mass layoffs, globalization, rising costs of living, and lower real
wages make clear, Americans no longer rely on stable careers, nor do
they assume that they will earn enough to raise a family on one salary.
Americans compete with workers around the world for wages and benefits.
In one out of four cases, they are employed in nonstandard
positions–temporary, part-time, freelance, contingent, day labor,
on-call, or self-employed. They change jobs on average every five years
and are unemployed for longer periods than in the past. Employees today
are less likely to be offered defined-benefit pensions or sufficient
health insurance from their employers; if they are lucky, they get
401(k)s and meager health coverage. The new system is winner-takes-all:
Those who have rare and needed assets to sell on the global market can
earn large returns, while those who compete against educated workers in
India or China or unskilled labor in Malaysia or Mexico fare far less
well.

The family has changed as well. Today, 70 percent of all families
with children are headed by either two working parents or a single
parent who works–the reverse of 1960, when 70 percent of all families
had a breadwinner and a full-time homemaker. Fifty percent of marriages
end in divorce, and one-third of children are living in single-parent
families at any given time. Parents in these new “juggler families” are
working more and more hours, but earnings have stagnated, and so the
additional income is often needed just to pay the bills. From 1979 to
2000, mothers in median-income, married families increased their hours
on the job by half, while mothers in lower-income families increased
their hours by between 60 and 70 percent. These families are dependent
on the mother’s earnings: Without them, family income would have
virtually held steady in the median-income families, and they would
actually have fallen in the lower-income families. Credit card debt has
increased for the average family by more than 50 percent over the last
decade, while low-income families saw a 184 percent increase in their
debt. As Harvard Law School Professor Elizabeth Warren has pointed out,
as a result of rising costs of health care, child care, education, and
housing, economic insecurity and even bankruptcy rates have increased
for these families, despite the fact that the mother is in the
workforce.

For these families, juggling to make ends meet and so dependent on
the mother’s income, time off to care for a sick child or a new baby
can result in devastating income interruptions and even job loss. In
addition, these workers are often denied the flexibility they need to
get home in time for dinner or take off on a sick day. According to a
report by the Urban Institute, over half of all workers report having
no control over scheduling alternative start and end times at work;
half of all workers have no access to paid sick days; and parents with
young children and working welfare recipients who need flexibility the
most are the least likely to have these benefits. As a result, juggler
parents often wind up paying a hefty penalty just to be good parents.
They lose jobs as a result of a child’s illness; they take part-time,
contingent, or other nonstandard jobs; and they sacrifice wages,
benefits, and job security if they can’t do shift work.

The job interruptions and part-time penalty affect all juggler
families, but they put the most pressure on mothers and their kids.
Mothers still bear the overwhelming responsibility for childrearing,
and as a result they are more likely to wind up in nonstandard jobs or
to lose their jobs completely when they stay home with a sick child or
refuse overtime to pick up a child at day care. It is no wonder
researchers find that, in comparing women in the workforce, those with
children earn 10 to 15 percent less than those without. Other
disadvantages abound: Women are about 15 percent less likely than men
to be offered health insurance directly through their employer, and
they constitute a full two-thirds of those who lost health insurance
coverage last year. The problem compounds for single mothers–either
divorced or never married–as they bear both the high economic risks of an inflexible job market and the high cost of supporting a family alone.

Shelly Waters Boots of the New America Foundation has summarized
some of the negative effects of juggler family life on children. In
2000, nearly one out of every eight couples with children was putting
in 100 hours a week or more on the job, compared with only one out of
12 in 1970. The consequences for juggler families are striking: Long
work hours have been shown to produce negative maternal attitudes and
more negative behaviors from children. When fathers work nights,
separation or divorce is about six times higher than for fathers who
work standard hours, while they are three times higher for mothers who
work nights. Children’s cognitive well-being also may be affected by
parents’ work hours: Studies have shown that children with parents who
work nights or evenings have lower reading and math test scores.

Rather than lessening these costs, outdated benefit and eligibility
rules mean that parents who turn down a promotion or take leave to care
for a sick child often wind up paying in lost Social Security,
unemployment insurance, and disability insurance benefits as well. The
result is a large penalty for taking time away from the 24/7 working
world to raise children.

A Vision for Reform

In the twenty-first century, parents are more important than ever as
the producers of human capital, and families need help smoothing
shortfalls in their income at least as much as families did in the
postwar period, irrespective of whether they are part-time workers,
temporary workers, taking time out of the workplace to care for a
family member, or retraining because an employer moved to India. They
need income-replacement no less when they take time out or cut back to
care for a sick child than the industrial family did when the
breadwinner experienced a temporary layoff. And when they have to
retrain to enter a new industry, they need help as well.
Parents–whether mothers or fathers–and other caregivers who pay a
part-time penalty in reduced earnings, job security, and benefits for
working flexibly should enjoy some peace of mind knowing that Social
Security will be there in their retirement, unemployment insurance will
be there if they lose a job even for family reasons, and that the
social insurance system values the work of parenting as much as it does
a paid job.

This is already the case in other industrial countries, which have
structured their retirement systems to provide both a minimum-benefit
guarantee (to keep the elderly out of poverty) and an earnings-related
benefit. They also grant credit toward the earnings-related benefit for
time spent away from the labor force caring for children. As a result,
poverty rates are higher in the United States and more unevenly
distributed than in most other industrialized countries. In addition,
all European countries have provided family allowances to help support
families raising children. More recently, in addition to granting
parents the right to work part-time or flexibly and public provisions
for early childhood education, they have adapted their systems to help
juggler families with such programs as paid parental leaves for mothers
and fathers.

But the United States has made few concessions to juggler families.
To be sure, since 1993 the FMLA has provided job protection for
employees of companies with 50 or more employees who take leave to care
for a new child or an ill relative. President Clinton also expanded the
Earned Income Tax Credit for low-income working parents and won new
child care and after-school funding. In addition, Democrats worked with
moderate Republicans to make the child tax credit refundable as part of
the Bush tax cuts. But the United States offers no right to even refuse
overtime–let alone work a flexible schedule–and only limited,
means-tested child care assistance and a small, regressive child care
tax credit.

Seventy years ago, the Roosevelt Administration designed its social
insurance system to address the real needs of families at a critical
time. But the national policies designed to meet the needs of
breadwinner-homemaker families in the 1930s are woefully inadequate for
contemporary households. America needs to take concerted action to
update its policies for a new century and new families. This most
definitely does not mean privatizing our existing social insurance
system, as the Bush Administration proposed. Instead, we must fix the
holes in the existing programs for retirement, unemployment, and
disability insurance through which too many of today’s families fall.
And we must put in place insurance against new risks that will help
today’s families thrive in the century ahead.

But what would such reform look like?

First, the Social Security spousal benefit cries out for change.
Because the Social Security family benefit is provided to spouses of
workers, rather than outright to parents, it leaves out single heads of
household who work, pay taxes, and raise children. These parents–mostly
mothers–already sacrifice earnings to raise children, so they wind up
with less in their own earned benefits. Yet they do not have the option
of claiming a spousal benefit instead. In fact, they might even get
less in benefits than someone who never works, doesn’t pay payroll
taxes, and raises no children–but has a working spouse. Eugene Steuerle
of the Urban Institute, one of the nation’s leading Social Security
experts, estimates that a single head of household who works for
$20,000 a year for 40 years and raises her children will get lifetime
benefits of about $95,000 while paying taxes of $50,000, whereas a
nonworking spouse who doesn’t raise children but happens to marry
someone making $100,000 a year will receive about $250,000 in lifetime
benefits and pay nothing in taxes.

The system even penalizes married juggler families–in effect,
rewarding Ward and June at the expense of Roseanne and Dan (when there
are far more of the latter than the former). Because spousal benefits
are keyed to the income of the primary worker, Social Security values
childrearing by higher-income families more than childrearing by
lower-income families and rewards single-earner families with far more
in benefits than dual-earner families that earn the same total income.
Steuerle estimates that a couple with each spouse earning $15,000
annually will get lifetime benefits of about $177,000, whereas a couple
with one spouse earning $30,000 but paying no more in taxes will get
about $273,000–close to $100,000 more.

Social Security also denies spousal benefits to those who divorce
within 10 years of tying the knot, and it forces couples who divorce
after 10 years to split benefits inequitably; the lower-earning spouse
receives only the incremental spousal benefit, worth one-half as much
as the own-worker benefit that the higher-earning spouse receives.
Given lower savings and a longer life expectancy, it is apparent why
almost one-fifth of all women age 85 and over still have income below
the poverty level.

To update this part of Social Security, we should convert the
spousal benefit gradually (phasing in for people in the workforce
today, not affecting those who have already retired) to a flat-rate
parental benefit (thus unrelated to a spouse’s wages). In the case of
divorce, the underlying Social Security benefit and the parental
benefit should be shared jointly, which would also create a small
disincentive for the primary earner to desert his spouse, as well as
reduce the mother’s double jeopardy.

A second problem with today’s rules is that parents are penalized in
retirement because Social Security benefits are calculated based on
average earnings over the 35 largest-earning years of work. A worker
who begins work at 25 and works 40 years to 65 incurs a penalty if he
or she reduces earnings for more than five years. These rules apply
equally to women and men, but since women with children take more time
out of the workplace and pay a part-time penalty when they do work,
they earn less over their lifetimes than even women without children.
This has the effect of reducing Social Security benefits for mothers.
Women received average monthly retirement benefits of $826 in December
2004, while men averaged $1,077. It’s no surprise that today 63 percent
of female Social Security beneficiaries age 65 and older choose their
spousal benefit–because it is higher than what their own earned
benefits would have been.

Social Security retirement-benefit calculations should be
re-jiggered so as not to penalize parents who take time off of work.
The years when parents cut back on work to care for children should not
weigh down average earnings for the purpose of calculating benefits.
This could be done by allowing parents to subtract from the 35 years
any year, up to 10 years, in which they have a child at home.

Third, unemployment insurance must be reformed to accommodate
today’s families and help them maintain their labor-force attachment.
Most states restrict U.I. eligibility to those who meet requirements
designed around a breadwinner’s job patterns. They provide benefits to
workers who quit as a reasonable response to an action taken by their
employer but, according to the National Employment Law Project, only 15
states provide benefits to workers who quit for equally compelling
family circumstances–such as the requirement to work night shifts when
an employee cannot find child care. In addition, 24 states
categorically deny U.I. benefits to part-time workers (although nearly
one-fifth of American workers are part-time and their wages are subject
to U.I. taxes). Many nonstandard workers are misclassified as
independent contractors and thus ineligible for U.I. benefits
altogether. The result of these and other outdated rules is that the
proportion of workers in jobs that even qualify for unemployment
insurance who received benefits during a period of unemployment has
decreased dramatically, from 80 percent in 1947 to 38 percent in 1995.
In response, unemployment insurance should be made available to workers
who leave a job involuntarily because of family, those looking for
part-time work, and those who have been in the workplace a shorter
period of time or are contingent workers. Eligibility should be
calculated based on hours worked rather than wage rates.

A New Social Compact

While our current social insurance programs call out for renovation,
we also must build anew. Adapting existing programs would help families
better navigate retirement, unemployment, and disability, but it is
also time we took seriously the new economic challenges that loom in
the lives of today’s families. Today, the United States is one of only
two industrialized countries that does not guarantee paid maternity
leave, and, as a result, only five percent of workers have access to a
job that provides paid leave on the birth of a new baby. Just as before
the passage of the Social Security Act, the states have begun
experimenting on their own. Five states require employers to have
temporary disability programs, which pay benefits to pregnant women. A
few others offer low-income families subsidies for infant care. And, in
2004, California became the first state to expand its state disability
insurance system to provide paid family and medical leave.

What is needed, though, is a national commitment to mitigating the
new risks to the economic well-being of families. Social Security took
on the problem of financial vulnerability in old age and won. We have
no equivalent commitment to addressing the financial vulnerability of
Americans earlier in their lives, before they have had time to save,
when they are hit with the exorbitant costs of raising a child at the
very same time as they find their earnings and benefits slipping
because of their childrearing responsibilities.

We need a new, universal Family Insurance system in America. It
would not eliminate the costs of having and rearing children–parents
who cut back on work would still receive less in wages, and they would
still have to pay for housing, clothes, and education–but it would
prevent the more common catastrophic economic disruptions that too
often send today’s families to bankruptcy court.

Family Insurance would address the very real possibility that income
will decline when one parent–or the only parent–stays home with a new
child, takes a part-time job to be home after school with a
kindergartener, or is forced into a temp job to gain the flexibility to
care for a parent with Alzheimer’s. Families would be able to draw down
benefits to replace earnings lost as a result of taking family and
medical leave up to a capped amount, just as they do in retirement. The
benefits could replace partial earnings if a worker goes part-time
instead of taking full-time leave–including if he or she decides to
take part of his or her child leave as reduced leave.

Family Insurance also would encompass the common risk that a family
loses health insurance, which is all too often the casualty of a
flexible job. In order to allow parents who can’t work nights, go
part-time, or even stay home access to the same tax-subsidized group
health insurance available to full-time workers with employer-provided
insurance, Family Insurance would provide a progressive credit to help
families buy into the federal employees’ group health plan.

Finally, to address the vulnerability that results from the fact
that the high costs of raising children hit at the same time as the
part-time penalty, Family Insurance would include an add-on account,
like the accounts some have proposed for supplementing Social Security.
These new Parent Accounts would be a substitute for today’s
little-known flexible spending accounts, which allow employees to put
aside $5,000, pre-tax, for health care expenses and another $5,000 for
childcare expenses. Flexible spending accounts are available only to
employees of participating firms and regressive to boot, whereas all
workers could establish new Parent Accounts for the health-, child
care-, and education-related expenses of raising a child. The
government would match a family’s pre-tax contributions to the account
on a progressive basis (giving a higher match to low-income families
and none to high-income families).

These steps–replacing a portion of wages when families take time
away from work with a child or an ill relative, providing access to
subsidized health insurance for part-time workers, and creating an
add-on account to help with the major expenses of raising a child–would
provide families the security they need to carry on the critical job of
raising our next generation. They could be financed through a
combination of a more progressive payroll tax (starting at a higher
wage rate and not capped by income) and general revenue to reflect the
fact that everyone in society, not just wage-earners, benefits from the
work parents do raising the next generation of citizens.

Of course, reforming social insurance cannot be a substitute for
continuing the effort to reform employment laws. All workers in the
United States should be able to return to their jobs after caring for a
new child or a sick relative, take a few days of sick leave, and have
the ability to negotiate a flexible schedule. But, after all, Franklin
Roosevelt did not choose between giving the industrial family new labor
protections and providing them the ability to share risks. He did both. In a new century, today’s families deserve no less.

Read more about EntitlementsSocial Security

Karen Kornbluh is Senior Fellow and Director, Digital Innovation and Democracy Initiative at the German Marshall Fund and a board member of the U.S. Agency for Global Media.

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