Paid family leave policies found to benefit small businesses

May 7, 2021
New evidence from New York shows paid family leave doesn't have to burden companies. (Pexels/John Finkelstein)

New evidence from New York shows paid family leave doesn't have to burden companies. (Pexels/John Finkelstein)

Paid family leave policies need not burden employers with undue costs related to employee performance, ease of schedule coordination and planning for absences of duration, according to new research based on New York's 2018 paid family leave policy.

In a working paper published by the National Bureau of Economic Research on April 12, researchers found the policy imposed minimal costs on small businesses with 10-99 employees between 2016 and 2019. Instead, firms reported an improvement in their ease of handling lengthy employee absences, particularly in the first year of the policy and among companies with between 50 and 99 employees. In the second year of policy implementation, the study noted that employees were 53.3% more likely to take leave, particularly at smaller firms.

These significant impacts do not appear to be driven by changes in employee composition resulting from paid family leave reform, as no changes were observed in the shares of female or part-time workers, employee quit rates, or the rates of absences taken without advance notice. Both women and men took parental leave absence under the new policy, and some people also took time off to care for family members who were ill.

Prior to the implementation of New York's policy, the study notes that employers in both New York and Pennsylvania — which has no paid family leave policy — rated employee performance quite well in areas of attendance, commitment, cooperation, productivity and teamwork, making it difficult to estimate any positive implications of paid family leave reform on these outcomes. Paid family leave was not found to negatively affect any of these dimensions, however.

Ann P. Bartel, the working paper's co-author, professor of workforce transformation at Columbia Business School and director of Columbia Business School's Workforce Transformation Initiative, said that given the lack of research available on employer perspectives and the implications of paid family leave, she and her colleagues were excited to pioneer a study on this topic.

"As a business school professor I felt it was very important to study how PFL affects employers," Bartel said. 

Policy discussions about paid family leave have raised concerns about potential costs on employers, especially small ones, she said, "but before our study, no research team had systematically gathered data to study the impact of PFL on employers. Employers are an important constituency in this debate, and their perspective needs to be considered."

Over the course of their study, Bartel and her colleagues found that the majority of New York businesses, more than 50%, were either very or somewhat supportive of paid family leave across all four years. Expressed employer opposition to the policy did increase, however, from 4.1% to 9.5%, most notably among the smallest firms.

Bartel said that companies expressing opposition might not have understood the details of New York's paid family leave policy very well. Policymakers at the state and national level should ideally prioritize the dissemination of information about the policy to employees and employers who may not generally be knowledgeable about such policies, since a lack of information, particularly in terms of how mandated paid family leave would be financed, could lead to hostility among employers. 

The majority of small businesses included in the study, however, did not experience the policy reform as an undue burden, which came as a pleasant surprise to Bartel and her co-authors.

"Unlike prior research, we were able to survey a large sample of small employers in New York and in PA [Pennsylvania] over four years, two years before the New York policy went into effect and two years afterward," Bartel said. "This unique dataset enabled us to estimate difference-in-difference and event study models to compare changes in outcomes in NY firms from before  and after the policy was implemented, relative to the changes in outcomes in PA firms over the same period."

In addition to New York, states such as California, New Jersey, Rhode Island, Washington and Washington, D.C., currently offer state-managed paid family leave programs in the absence of national accord. Legislation instituting 12 weeks of mandated paid family leave for all federal employees was also enacted in December 2019, but similar options are still far from reality for the average employee in the U.S.

According to the National Partnership for Women and Families, only 19% of American workers have access to employer-provided paid family leave benefits despite 84% of voters surveyed expressing support for nationwide, comprehensive paid family and medical leave policy. According to a 2018 Pew Research Center analysis, the U.S. is the only country, out of 41 examined, not to mandate paid family leave protection nationally. The minimum mandated paid family leave among the other countries — which included the United Kingdom, Germany, Japan and Estonia — amounted to approximately two months.

Paid leave can not only prove beneficial for new parents, but also for employees who need to devote extra time to caring for an ailing parent or family member. A 2010 study conducted by the International Labor Organization found that paid sick leave offers extensive health and economic benefits for employers, workers and the economy. Especially in periods of crisis, social protection programs such as sick and family leave prevent workers from having to choose between caring for family and maintaining stable employment. However, these programs are often among the first to face cuts during budgetary reform and economic downturn.

In the aftermath of the COVID-19 pandemic outbreak, the U.S. Congress passed temporary paid family leave legislation, and the Biden administration has hinted at additional changes to come this year. These efforts have received some pushback from critics who cite unnecessary administrative burdens on employers, especially small businesses, or the potential for discrimination against employees who do decide to take a leave of absence under the new policies. 

As Bartel's and her colleagues' findings in New York demonstrate, however, paid family leave has the potential to benefit smaller firms through improved employee retention and performance if such policies are designed and implemented carefully, with employer perspectives in mind.

The study, "The impact of paid family leave on employers: Evidence from New York," published April 12 as a National Bureau of Economic Research working paper, was authored by Ann P. Bartel, Columbia University and National Bureau of Economic Research; Maya Rossin-Slater, Stanford University School of Medicine and National Bureau of Economic Research; Christopher J. Ruhm, University of Virginia and National Bureau of Economic Research; and Meredith Slopen and Jane Waldfogel, Columbia University.

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