California Shows How Paid Leave Law Affects Businesses: Not Much

Back Bloomberg Oct 23, 2015 By Esmé E. Deprez

As presidential candidates debate government-mandated paid family leave, the U.S. has a 39 million-person test lab.

California in 2004 enacted the nation’s first such program, ensuring workers are paid for as long as six weeks when caring for a newborn or ailing loved one. The law is financed through an employee payroll tax, meaning companies in the world’s eighth-largest economy bear no direct costs.

It hasn’t been the death blow to businesses that opponents warned of, according to studies over the past decade. California’s employment growth outpaced the U.S. average by 2 percentage points during that time, according to data compiled by Bloomberg.

Paid leave is woven into the economic platforms that Democrats Hillary Clinton and Bernie Sanders are pitching to voters. Clinton told a New York crowd in April that it was “hard to believe” that “so many women still pay a price for being mothers.” In the party’s debate last week, she and Sanders decried U.S. lawmakers’ failure to join 183 countries in passing a nationwide policy.

Republicans such as Carly Fiorina, former chief executive officer of Palo Alto, California-based Hewlett-Packard Co., and Senator Marco Rubio of Florida, meanwhile, say businesses should be free to offer whichever benefits they choose.

Popular Policy

National polls this year showed support as high as 71 percent of Republicans and 88 percent of Democrats for policies that benefit workers including paid family leave, equal pay and affordable child care. Some small business owners say California’s law has helped them compete.

“I’m a small agency, so I don’t have the ability to give every benefit you might expect from a larger company,” said Adam Rochon, who co-owns Sequoia Employee Benefits and Insurance Solutions, a five-employee company that brokers benefit packages for companies near Fresno. “A program like this, where it doesn’t actually have an out-of-pocket cost, is great because it allows you to offer benefits you wouldn’t normally be able to.”

Private-sector workers can collect 55 percent of their wages, capped at $1,104 per week. Payouts to 1.8 million people in the first decade totaled $4.6 billion, according to the state. Nine in 10 people claimed them to bond with a new child, and, while most recipients were women, claims by men have jumped 411 percent from the first year. New Jersey and Rhode Island have since enacted similar policies. A proposal in the California legislature aims at making the program more accessible to the poor by boosting the proportion of earnings that lower-income workers receive.

An analysis for the U.S. Labor Department led by Columbia Business School professor Ann Bartel last year examined dozens of studies on family leave. It concluded that while California’s policy prompted mothers and fathers to take more time, it didn’t harm workplace productivity, profitability, retention or morale.

“The law has not caused major problems for California employers,” the study said. “Small employers, if anything, report fewer problems than large firms.”

Papua New Guinea and the U.S. are the only countries to not offer cash benefits to women taking maternity leave, according to the International Labour Organization, a United Nations agency in Geneva. Financing leave through social insurance or public funds is preferable, because when employers bear the full direct costs, it says, “this can create disincentives to hiring, retaining and promoting women workers.”

Among Americans in the private sector, just 12 percent work for companies that offer the benefit, government data show. Access among income groups is uneven: The highest earners are more than four times as likely to have it as their lowest-wage counterparts.

About half of Americans can take 12 weeks of job-protected leave under federal law, but it’s unpaid, leaving many unable to afford to take advantage of it even as greater shares of them work and care for aging relatives. The website mom.me recommends newly pregnant women get a second job, “assuming you’re not derailed by morning sickness.”

Working Women

Proponents say a federal paid-leave program, which would require approval from a divided Congress, would boost economic stability and help close the gender pay gap. The Obama administration has been among the champions, and in January granted federal workers six weeks of paid leave.

“Paid maternity leave can increase female labor force participation, which contributes to economic growth,” Labor Secretary Thomas Perez said in a report last month. “If U.S. women between 25 and 54 participated in the labor force at the same rate as they do in Canada or Germany, which have paid leave and other family policies, there would be more than five million more women in the labor force in the U.S. This, in turn, would translate into more than $500 billion of additional economic activity per year.”

Opponents of such laws include California’s Chamber of Commerce, which says negotiations should take place between employers and employees without government interference.

In an article for the Huffington Post, Fiorina wrote that Hewlett Packard, from which she was ousted in 2005, offered paid parental leave “because we wanted to compete for the best workers.”

Mandates in other countries have discouraged employers from hiring and promoting women, she wrote.

“We need an economy that is so strong that employers are forced to compete for workers by offering better salaries, better leave policies, more time off and good benefits,” she wrote.

Rubio is the only Republican with a paid-leave plan, but he would require no mandate. Instead, he’d give a 25 percent tax credit to businesses providing at least four weeks. Clinton hasn’t presented a formal plan but indicated during the debate that “we’re going to make the wealthy pay for it.”

Paid-leave laws saddle businesses with the expense of temporary workers or overtime to cover for absentees, said Jack Mozloom, spokesman for the National Federation of Independent Business, which has fought such policies.

He cited a 2014 paper from the Institute for the Study of Labor in Bonn, Germany, that found that “the labor force participation rate, the unemployment rate, and the duration of unemployment among young women rose in California compared to states that did not adopt paid family leave.”

Eva McHenry, who’s run a daycare and preschool outside Modesto for 14 years, said she’s had six workers take paid leave. Her business hasn’t suffered, because she requires advance notice and has backup workers.

“When we take care of our employees they make for better employees,” she said. “My philosophy as a small business owner and in life is: If you are prepared, you need not fear.”

–With assistance from Jennifer Oldham in Denver.