Paid Family Leave Laws and Firm Resource Allocation

Abstract

Using the adoption of state-level Paid Family Leave (PFL) laws as an exogenous shock to local labor markets, I examine how firms reallocate labor internally and adjust aggregate investment. Consistent with a reduction in labor market frictions, I find firms reallocate labor towards treated establishments, are more likely to keep establishments in the treated states, and reduce total investment in capital expenditures. The change in investment policy supports the substitutability of labor and capital in a firm's production function. Collectively, the evidence supports the argument that the adoption of a PFL program attracts business activity to the state.

Keywords: JEL Classification: G30, J01, J24, L22 Labor Markets, Investment, Human Capital, Paid Family Leave, Corporate Finance

JEL Classification: G30, J01, J24, L22