Paid Leave Pays Off: The Effects of Paid Family Leave on Firm Performance

Abstract

Using the staggered adoption of US state-level Paid Family Leave (PFL) acts, we find that lowering labor market frictions for female workers leads to reduced employee turnover and profitability gains for private and publicly-traded firms. Relying on recent advances in econometric theory of staggered difference-in-differences analysis, we ensure this finding holds when correcting for the bias arising from staggered adoption. Following the introduction of state-level PFL, productivity increases by about 5% in treated establishments, relative to control establishments in adjacent counties on the other side of the state border. We document heterogeneous treatment effects consistent with our identity-based framework.

Keywords: Paid Family Leave, Labor Force Participation, Gender, Diversity, Talent Allocation, Firm Performance

JEL Classification: J16, J22, J24, J32, J78, M14, M51