Study finds that paid family leave does not hurt employers
With the battle over federal paid family leave heating up again, a new Stanford study has answers to a key question at the heart of the debate: Are businesses hurt when workers take time off with pay to care for a child or ailing family member?
The answer is no, according to research by Maya Rossin-Slater, an associate professor of medicine and a SIEPR faculty fellow. If anything, the policy makes it easier for employers to deal with lengthy employee absences, at least in the short-term. In a new working paper, Rossin-Slater and her co-authors find—among other insights—that a taxpayer-funded paid family leave policy implemented in 2018 in New York did not adversely affect employer's ratings of employee productivity, cooperation, or attendance. What's more, there was an improvement in employers' average rating of their ease of dealing with workers' absences, and the majority of employers support the policy.
Their analysis, released Monday by the National Bureau of Economic Research, is striking for both its timing and novelty.
President Joe Biden is expected to propose paid family leave as part of a revamp of what advocates call the nation's "care infrastructure." Polls have shown that a majority of Americans support paid family leave, and more than 200 businesses last month formally urged Congress to enact it. While several states have either passed or implemented paid family leave legislation, the United States is the only high-income country without a policy at the federal level.
[In addition to New York, states with paid family leave laws include California, Colorado, Connecticut, Massachusetts, New Jersey, Oregon, Rhode Island, Washington, and Washington, D.C.]
Rossin-Slater's research looks at the core argument against federal paid family leave: that it will hurt employers' bottom line, even if the money paid to workers comes from the government. Opponents also argue that employees will suffer as companies might avoid hiring anyone who they think might take the benefit, such as women of child-bearing age.
But data on the impacts of paid family leave on employers are hard to come by, so nobody has known for sure if employers really do suffer and, if so, to what extent.
"The biggest roadblock so far to passing a paid family leave policy has been this open question about the indirect costs to employers," says Rossin-Slater, who is also a core faculty member at Stanford Health Policy. "While there are hundreds of studies showing benefits to workers and families, the evidence on employers has been very, very limited."
Her study—which she conducted with Columbia University's Ann Bartel, Meredith Slopen, and Jane Waldfogel, as well as Christopher Ruhm of the University of Virginia—is among the first to provide causal evidence of how paid family leave impacts businesses.
"We don't find any evidence of adverse effects on employers," Rossin-Slater says.
Direct evidence from employers
The history of family leave legislation in the United States dates to 1993, when the Family and Medical Leave Act (FMLA) was enacted to guarantee 12 weeks of unpaid job-protected leave for qualifying workers. Only larger business with 50 or more employees are covered by the FMLA, and take-up of the benefit has been low, especially among low-income workers who can't afford to take unpaid time off.
In 2004, California became the first state to pay workers on leave a portion of their salary through the state's employee-funded disability insurance program. Today, nine states and the District of Columbia offer some form of paid family leave. In 2019, the Trump administration extended the benefit to most federal employees. And when the COVID-19 pandemic hit, Congress passed a temporary provision for paid family leave.
Family leave policies have long been a focus of Rossin-Slater's research agenda. She has found that California's policy increases leave use among both mothers and fathers, and has studied implications of the FMLA for infant health. She detailed the impact of family leave laws in a 2018 SIEPR Policy Brief.
When New York passed a paid family leave law in 2016 that covered private sector workers and would be funded through a payroll tax, Rossin-Slater and her co-authors saw an opportunity. They set out to survey employers in the state with 99 or fewer workers over the two years before the law took effect in 2018 and in the two years following. For their control group, they surveyed comparable employers in Pennsylvania, which has never offered paid family leave. In all, nearly 4,600 firms participated in at least one of the four years.
In their survey, the researchers solicited data on potential indirect costs of the policy. They asked about the percentage of female and part-time employees, yearly turnover, and absenteeism rates. They also asked employers to rate five measures of employee performance, including productivity and attendance, and their ability to coordinate work schedules and employee absences of varying lengths.
For employees who took time off to care for family, the scholars tracked their gender and the precise reason for the leave of absence. They also measured the New York employers' views of the new law.
Benefits to employers
Their analysis yielded several key findings. They show, for example, that employer perceptions of their workers' performance—an indicator of profitability—did not change after the policy took effect. They also show that, in the law's first year, the businesses found it easier to manage leaves of absences of two weeks or longer. The improvement was driven by employers with 50-99 workers; the study found that employers with less than 50 employees did not initially see an increase in workers taking leave.
That began to change as the amount and duration of the benefit became more generous and employers had more time to look back on how their workers were using it. In the second year of the law, the researchers observed a large jump in leave-taking among the smaller businesses. Overall, employees in all the firms surveyed were 53.3 percent more likely to take leave, and this impact reflects increases in both women and men taking parental leaves, as well as men taking leaves to care for ill family members.
To Rossin-Slater, the increase in leave-taking among businesses with fewer than 50 employees was not surprising; companies of that size are exempt from the FMLA.
The study also shows that the law had no impact on the makeup of the employers' workforces. "We don't find evidence that firms are hiring or firing different types of workers due to the policy," Rossin-Slater says. Among other things, this suggests to Rossin-Slater that employers are not discriminating against workers most likely to take paid leave.
As for employer views of the policy, the researchers find that the majority of businesses were either very or somewhat supportive of paid family leave across all four years. However, opposition to the policy grew from 4.1 percent of employers to 9.5 percent over the same time period. Rossin-Slater says further research is needed to understand why objections rose. One possible explanation could be that small businesses are unhappy with the administrative burdens of complying.
Overall, Rossin-Slater says, the study suggests that paid family leave might help employers by—among other things—requiring them to develop standardized processes for managing longer worker absences. She says the findings are especially relevant today as COVID-19 has highlighted the need for standardized systems in the workplace when a larger-than-expected number of employees have to care for children or other family members.
"Our evidence," Rossin-Slater says, "is at least suggestive of the idea that having a family leave policy in place reduces the burden on employers, especially when dealing with unprecedented situations like a pandemic."