Employee Welfare and Startup Growth: Evidence from Paid Family Leave Policy and Venture Capital Funding
53 Pages Posted: 14 Jan 2025 Last revised: 16 Jan 2025
Date Written: January 04, 2025
Abstract
This study investigates the impact of Paid Family Leave (PFL) policies on Venture Capital (VC) investments in startups. Leveraging New Jersey and Rhode Island's PFL policies as a quasi-experimental setting, we find that PFL implementation is associated with a significant 18.9% decline in VC investments. This negative effect is particularly pronounced in startups with higher proportions of female employees. While PFL policies are intended to improve workplace conditions, our analysis shows no impact on hiring rates but reveals an increase in exit rates among female employees, particularly female inventors. Additionally, we find that PFL policies are linked to a decline in startup innovation. These findings contribute to the entrepreneurship literature by illustrating that while PFL policies aim to enhance workplace environments, they may impose operational costs on startups, diminishing their appeal to venture capitalists.
Keywords: Startup Employees, Technology Entrepreneurship, Human Capital, Workplace Environment, Venture Capital Investment, Paid Family Leave Policies
JEL Classification: L26, M13, J24, G24, C23
Suggested Citation: Suggested Citation