What will life for working parents look like for the next four years?

The global pandemic has only underscored what many working parents already know; being a working parent is really f’ing hard. When daycares and schools shut down across the country, parents scrambled to find ways to take care of their children while working 40+ hours a week. And now, 1 in 4 women are considering dropping out of the workforce in order to take care of their kids — in fact, 617,000 women dropped out of work in September alone.

On top of this are the stark facts around the gender pay gap — in the US in 2020, women make only $0.81 for every dollar that a man makes, and that disparity increases severely for women of color. What you might not know is that 80% of the gender pay gap can be contributed towards what academics call the Motherhood Penalty. The Motherhood Penalty is the drop in women’s earnings upon starting a family, and is influenced by paid versus unpaid parental leave, returning to work part time versus full time, and a myriad of other factors such as the exorbitant costs of childcare. While many assume that the penalty for taking time out of work is simply the lost salary of the parent, it’s actually much more than that due to loss of 401k/pension contributions, biases at work on mothers’ commitment, assumed or actual skills gap, and more. In fact, for every year that a woman takes out of work to care for a child, she can lose up to 10x her annual salary in long term earnings.

Mirza is a company on a mission to close the gender pay gap by ending that very same Motherhood Penalty. We’ve built an online tool to help soon-to-be parents plan for the financial and professional decisions that come with starting a family. Our proprietary algorithm is created from decades of academic research, then verified and supplemented with publicly available data from the American Community Survey and ONET, among others. Our calculator projects you and your partner’s salary growth alongside the costs of raising a child and childcare, while helping you understand how the decisions you make impact your long term finances.

We are also just days away from one of the most anticipated elections in US history. As a company dedicated to helping working parents, Mirza has been closely following the candidates’ platforms and policies, especially those geared towards women and families. We decided that we should run an analysis, using our tool, on what life could look like for working families in the case that either candidate is successful.

In order to understand how the two candidates policies’ could influence the financial well-being of working parents, we first looked at their policy proposals and platforms to understand what those different factors would entail. Then, using our algorithm and other publicly available sources for costs (appendices below) we ran the numbers.

Current State

Before we dive into each candidate’s platform, it is important to understand where the US currently stands on policies for working families and how and why they matter. The US is currently the only OECD country that doesn’t mandate paid maternity leave. Many parents have to use either FMLA (which provides 12 weeks of job-secure unpaid leave, and isn’t available to everyone) or short-term disability leave when they have children. For the vast majority of American families, one parent losing their income for 12 weeks is not sustainable for the financial stability of the family.

In addition, childcare costs in the US have risen dramatically. In 28 states, the annual cost of childcare is more than tuition at a public college or university, as stated by Elliot Haspel in his new book, Crawling Behind: America’s Child Care Crisis and How to Fix It. When we think about the fact the median household income was $68,703 in 2019 according to the , most families cannot afford to pay for childcare, and therefore one parent (usually the mother) drops out of the workforce.

Another fun statistic from Elliot’s book is that, “Businesses lose out on $13 billion annually due to employees missing work bc of childcare breakdowns, and hourly workers drop more than $8 billion in lost wages.” There is a huge economic case for investing in childcare systems for the health of the economy.

We want to tackle these issues at Mirza, so we thought it was important to use the tools at our disposal to help voters understand the implications of both candidates’ policies for working families. We’ve chosen to model scenarios for two median income households, one in Wisconsin and one in Florida, as polls in these two battleground states indicate either candidate can still pull off a win.

Candidate’s Policies

President Trump/the GOP elected not to release a platform for this upcoming election, so as a caveat plans for working families are not entirely clear for this administration. The major change that has been made for families during Trump’s administration has been the increase of the Child Tax Credit in 2017, which doubled the credit from $1000 to $2000 per child, and made $1400 of that refundable. As that is set to continue until 2025, we’ve included that credit year over year for all of our model families.

How do tax credits help? Tax credits are designed specifically for lower income families, as they reduce the tax burden placed on those earning less. The downside is that the relief comes once a year, and many families face expenses that occur throughout the year and don’t have the savings to cover unexpected costs. For example, in Madison, Wisconsin, families within the income bracket we’re using pay an average of $11,692 on childcare expenses each year. The tax credit would cover just over two months of childcare for this family.

The Child Tax Credit was established in 1997, and there are two other family oriented tax credits that exist — one is the Earned Income Tax Credit (EITC), and the other is the Additional Child Tax Credit (ACTC). The income threshold for the EITC was $52,504 in 2019, so our two families make too much money to qualify for that tax credit. As they are both giving birth to their first child, the ACTC also doesn’t apply here.

Joe Biden/the DNP are running on a platform that includes 12 weeks of federally mandated paid parental leave, and Universal Child Care for 3–4 year olds.

How does paid parental leave help? As we can see from our tables, the majority of families in America are living on very thin margins! When one parent is forced to take 12 weeks of unpaid leave to care for their newborn, that is a financial hit that many families cannot afford.

Equally important is the opportunity for both parents to be able to take leave. in Sweden, where parental leave is not only offered, but its uptake encouraged, has shown that an additional month of leave that fathers take can result in roughly a 7% salary increase for the mother over the subsequent years. Further indicate that this period of parental leave helps fathers learn crucial parenting skills, as fathers are more likely to continue performing child rearing work (such as bathing and feeding their children) after the leave has ended. And as fathers share in childcare, a in the UK finds that partners are almost twice as likely to see career progression. Paid parental leave and the environment that facilitates its uptake helps both parents share childcare and household responsibilities, and allows both to participate at work and at home.

What does it all mean?

At a high level: Taking Trump & Biden’s policies into account, we’ve pulled the median take-home income for 2 parents in Pensacola, FL and Madison, WI, and removed the lost wages, lost wage growth, and lost retirement assets that would be experienced by the parents if the mother took one year out of work in order to determine the annual motherhood penalty.

More specifically: In order to model these scenarios, we used income data from the Current Population (CPS) 2020 Data to identify median household income for the two cities that we chose, Madison, Wisconsin, and Pensacola, Florida. Our salary growth is based on a combination of our proprietary algorithm (created from decades of academic research, then verified and supplemented with publicly available data from the American Community Survey and ONET, among others), ONET occupational growth data, and data from the Center for American Progress. In the spirit of equity, we’ve assumed that both partners are bringing in equal salaries. Both of our model couples are cis-gender and heterosexual, as there is not sufficient data to understand the full extent of the Motherhood penalty for LGBTQ+ couples.

Our cost projections are compiled from regionalized child raising data, Health Care Cost Institute data on childbirth, and data for childcare cost projections.

Both families are impacted by the motherhood penalty, and we’ve assumed that the mothers have taken a full year out of work after childbirth. We’ve modeled over five years, with childbirth occurring in 2022, so that visibility into life pre and post child is possible. This also includes the continuation of Trump’s Child Tax Credit and Biden’s Universal Child Care.

We chose not to factor in corporate tax rate changes or changes to the Affordable Care Act, as we felt those could be too speculative and not necessarily representative of the median household in the states. We also have not altered any current state or federal income tax rates for our model families, as Trump hasn’t released any proposed changes and Biden has proposed to only increase taxes for those making over $400,000/year.

In both states, the key takeaways are similar; federally mandated paid leave helps families in the short and long term. Universal child care helps families financially as well as professionally.

Another major takeaway is that the median household income means that families are living on extremely tight if not negative household budgets. If emergencies or unexpected costs arise, especially medical, the majority of American families cannot afford to cover those expenses and are forced to enter into debt.

Originally published at https://www.heymirza.com on October 29, 2020.

We’re not here for small talk. We’re here to get into the nitty-gritty details and tackle the fears every parent-to-be faces.

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