Paid Family Leave Pays Off in California
Harvard Business Review, January 19, 2011
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In July 2004, California became the first state in the nation to implement a program that enables most working Californians to receive up to six weeks of partial wage replacement — 55 percent of their usual weekly wage, up to a maximum benefit of $987 — when they need to take time off to bond with a new child or to care for a seriously ill family member. In 2010, we conducted the first evaluation of how the program is working for the state's employers and workers, six years after it began operation. Our research has yielded three major findings.
First, despite the alarmist arguments and strong opposition of the business lobbies that paid family leave would raise costs, invite abuse and be a "job killer," our 2010 survey of employers found that the program has been a non-event for California businesses. California's paid family leave (PFL) program is structured as an insurance scheme, similar to unemployment insurance. There are no new mandates on businesses — the program is funded fully by employee contributions with no direct costs to employers.
In a random sample of 253 firms, stratified by size, employers reported that PFL had no noticeable effect or a positive effect on productivity (89%), on profitability (91%), on turnover (93%), or morale (99%). Despite fears that small employers would experience the most difficulty, we found that firms with less than 50 employees and those with 50 to 99 employees actually reported more positive outcomes than those with 100+ employees. The fears about abuse of the program also did not materialize: 91% of the employers surveyed reported no knowledge of abuse, and among the 9% that were aware of abuse, it was a rare occurrence. Most employers (87%) reported no cost increases associated with the program, and 9% reported cost savings via reduced turnover or reduced benefit costs. We suspect that even more employers may have experienced cost savings since about 60% reported that they coordinated employer-provided benefits (paid vacation, sick days and/or disability benefits) with the state program. The minority who reported cost increases (13%) incurred additional hiring and training expenses to cover the work of employees on leave. However, the great majority of employers reported no such cost increases, because they typically covered work by assigning it temporarily to other workers.
Our second major finding involves the potential of California's PFL program to provide all private sector workers with the kinds of paid leave benefits enjoyed by a lucky few [pdf] in America — and by those who live and work in other countries, all but three of which offer some form of paid parental leave. Low-paid workers typically have little or no paid time off to deal with pressing family emergencies. Many even lack any paid sick days. We conducted a screening survey of 500 California workers who experienced an event that would have made them eligible for a paid family leave, whether the employee took the leave or not. We found that all workers — those in high-quality jobs (paying over $20 an hour with access to employer-provided health insurance) as well as those in low-quality jobs — gained from the program. The gains were greatest for workers in low-quality jobs that knew about and used the PFL program (many were unaware of its existence, however).
Workers who used PFL also were more likely to be satisfied with the length of their leave, and better able to care for a new child or seriously ill family member. Median weeks of breastfeeding doubled for new mothers who used PFL, from 5 to 11 weeks for those in high-quality jobs and from 5 weeks to 9 weeks for those in low-quality jobs. This has important health benefits for both mother and infant. Use of PFL also increased the likelihood of workers in low-quality jobs returning to work with the same employer.
A third key finding is the substantial increase in the proportion of men using PFL to bond with a new child, which rose from 17% to 26% over the six years since the program began. PFL benefits are equally available to men and women who actively participate in parenting a new child, and working parents can draw on PFL either sequentially or at the same time. This, along with the fact that the program offers wage replacement, seems to be an effective incentive for men's increased participation in care of a new child.
California's PFL program has substantially benefited the workers who utilize it, especially workers in low-quality jobs, and has had minimal impact on businesses. Fears expressed by opponents of the program that PFL would create a heavy burden on the state's employers have not materialized, and some employers even report reductions in costs and improvements in productivity or profitability.
Our research, carried out during the current challenging economic period, suggests that California's experience could serve as a basis for programs in other states to help improve work-life balance. The benefits of family leave insurance to workers are great while the costs of such insurance are modest. Workers in California and New Jersey, the two states with family leave insurance programs, have willingly paid the full, direct costs of the state programs via a payroll deduction. In a time when so many states are dealing with deficits by slashing services, paid time off to care for their families when the need arises is a highly valued benefit that states can provide without affecting their fiscal positions.
Eileen Appelbaum is Senior Economist at the Center for Economic and Policy Research. Dr. Ruth Milkman is a professor of sociology at UCLA, where she is also director of the UCLA Institute of Industrial Relations, and at CUNY.