How paid parental leave helps you, your newborn and the job market

BY Simone Pathe  January 3, 2014 at 12:49 PM EST

Both mothers and fathers took more time off to spend with their new babies when they had the right to paid family leave through the state of California. And for mothers, paid leave increases the chance they’ll be working one year after giving birth. Photo courtesy of Flickr user courosa.

With the start of 2014, new parents in Rhode Island are eligible for paid family leave — the third state, after California and New Jersey, where such a right has been codified and enforced.

At the national level, the Family Medical Leave Act (FMLA) guarantees workers 12 weeks unpaid leave to care for a newborn or sick relative, but the United States remains the only advanced economy that does not provide paid parental leave. German mothers can take up to a year off from work and still receive 67 percent of their pay. And in Canada, mothers get a year or more of maternity leave with 55 percent of their pay.

That’s not to say the issue of paid family leave (more inclusive than the strictly “parental” leave seen in some countries) hasn’t been raised at the national level. Women, who have traditionally been the ones to take family leave, now hold more seats in Congress than ever before. Just last month, Sen. Kirsten Gillibrand, D-N.Y., and Rep. Rosa DeLauro, D-Conn., introduced the Family and Medical Insurance Leave Act.

But if the nearly 10-year debate over unpaid leave (finally passed in 1993) is any indication, their legislation could have a rough slog through today’s Congress.

As in the fight for unpaid leave, states are taking the lead on paid leave, too. Washington passed a paid family leave law in 2008, although its enactment has been delayed to 2015 because of budget constraints, while New York and Massachusetts have bills pending in their state houses.

As is often the case with bottom-up movements, the action has begun in politically sympathetic areas. All of the states that have enacted paid family leave are blue, and not coincidentally, paid family leave is typically branded a liberal issue.

But it shouldn’t be cast in such a narrow light, says University of Virginia’s Christopher Ruhm. Paid family leave is a family values issue, although he admits the conservative politicians who employ that phrase aren’t typically referring to the kind of work-life balance that, in his opinion, paid family leave allows.

With Charles Baum of Middle Tennessee State University, Ruhm is the author of a new National Bureau of Economic Research working paper examining the effects of California’s Paid Family Leave (CA-PFL) on labor market outcomes.

Passed in 2002 and enacted in 2004, California’s law allows for six weeks of paid leave financed through a payroll tax. (That money is added to the existing Temporary Disability Insurance program, which already grants new mothers six weeks of paid leave after pregnancy). So when employees take leave to care for a newborn, it’s not their employer who pays the portion of their wages they receive during that time. (Employees are paid 55 percent of what they would normally make with a maximum of $1,067 per week in 2013).

In this sense, paid family leave is similar to Social Security, with the money coming from a pool of employees, many of whom, theoretically, can take advantage of the benefit when they need it. Indeed, under Gillibrand’s and DeLauro’s proposal, employers and employees would contribute to a national insurance program through the Social Security Administration.

But Ruhm isn’t one of those workers who needs to take advantage of paid family leave. His kids were in diapers long before this was a possibility, and they have long since left the cradle for college. Ruhm’s interest, first in unpaid leave, and now, in paid leave, stems from his curiosity about the effects of mandated benefits.

Unpaid leave, according to most previous research, is associated with positive labor market outcomes, like increased aggregate employment and wage rates. Taking leaves allows for a continuity of human capital. If you’re allowed to temporarily leave — not quit — your job after having a child, the theory goes, your relation with your employer will be sustained and you can more or less pick up where you left off in terms of salary, at least compared to if you had to search for a new job and start from scratch.

But would paid leave have the same labor market effects? Not surprisingly, since paid leave has been so sparsely implemented, most of the research on leave focuses on the unpaid variety. Ruhm’s and Baum’s study shows that paid leave offers some of the same benefits for not too large a cost.

They predicted that California’s paid leave could expand leave-taking beyond what parents would take under the 1993 unpaid FMLA. Obviously, continuing to receive pay — even if not a full salary — would make taking leave more feasible for less well-off parents. And more workers would be covered under a plan like California’s. That’s because under the federal FMLA, workers who don’t have a long enough work history or work for a large enough firm are excluded from rights to unpaid leave.

California’s program isn’t completely universal either; public employees are not eligible. One other crucial difference between California’s law and the FMLA is worth noting. The federal unpaid leave right comes with job-protection; paid leave from California does not. Although there have been instances of women who didn’t apply for paid leave for fear of losing their jobs, it’s unlikely many employers would terminate parents seeking the benefit, Ruhm said.

To test the effects of California’s law, Ruhm and Baum compared the leave and work decisions of new California parents whose children were born after CA-PFL was implemented to those whose children were born before. They then held these results up against comparable parents in comparison states.

What Ruhm and Baum find suggests that paid family leave improves the work-life balance of mothers and fathers. California’s paid leave increased leave-taking by 2.4 weeks for the average mother and by just under one week for the average father. Of course, the base of men taking leave is still small, but this increase is significant and gratifying, Ruhm said. The one week boost is nearly double what this small fraction of leave-taking men would take without paid leave.

Paid leave, while decreasing maternal employment and wages in the short-term, increases both in the long-term. To dig deeper into these labor market effects, Baum and Ruhm zeroed in just on mothers. California’s program increases rates of maternal work a year after birth and increases hours of work and weeks of work by 15 to 20 percent within a child’s second year of life. A year out from birth, they also found an association with increased hourly wages for new moms who took the leave, but causal evidence for those raises is more tentative, said Ruhm.

States are different in a lot of ways, Ruhm cautioned, but for now, California offers the best evidence that, at the very least, the right to paid leave will encourage more parents, and more fathers, to take it. And if the program already shows positive effects on labor outcomes for mothers, it’s likely, the authors predict, that increasing the wage replacement rate and further publicizing the program will have similar effects.


This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions