Working Paper
Bucks for Bumps:
How Paid Parental Leave Pays Off for Firms
Firms use benefits such as paid parental leave (PPL) to attract and retain employees. In the U.S., which lacks broad public PPL benefits, firms have steadily increased private, employer-based versions of this benefit over the last several decades. Despite its growing prevalence, systematic evidence on the effects of private firm PPL is limited. This is due in part to the absence of comprehensive data on firm policies and employee outcomes. Utilizing a novel, hand-collected database of U.S. firm PPL policy changes and mapping them to individual work histories, this paper estimates the causal effect of private firm PPL expansion on employee retention at the focal firm. A differences-in-differences approach is used to estimate within-firm retention effects. Results show that PPL expansions by U.S. firms lead to a statistically significant increase in the relative retention of female workers in the period following the policy change. Analysis of subgroup heterogeneity reveals that retention effects are strongest among the youngest, least paid, least senior, and least educated female workers. Among firms, effects are strongest at the largest firms, those with the lowest measured internal labor market flexibility, those with moderate baseline churn, and those with low to moderate revenue growth. These effects are concentrated in states without public paid parental leave programs and exhibit diminishing or non-monotonic returns with respect to leave duration. Finally, combining individual-level fertility estimates from the American Community Survey (ACS) with firm policy data, the paper estimates the expected costs of PPL provision and compares them to retention gains, providing novel evidence on the net benefits of PPL programs to firms.