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 provision of this benefit. Despite its growing prevalence, systematic evidence on the effects of private firm PPL is limited, 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 mapped to individual work histories, this paper estimates the causal effect of PPL expansion on employee retention at the focal firm using a differences-in-differences approach. PPL expansions by U.S. firms reduce departure rates for both men and women by 2.6% relative to pre-policy-change departure rates. However, PPL simultaneously activates multiple retention mechanisms that load differently across workers and firms, generating opposing retention effects from a uniformly provided benefit. Subgroup heterogeneity reveals differential retention gains for women concentrated among the lowest paid, most junior and least educated workers; these gains attenuate and reverse at higher salary and seniority levels, where absence-related career costs dominate. At the firm level, PPL expansions reduce departures most in large firms and those with more rigid internal labor markets, but are associated with higher departures in highly flexible environments. Firm PPL expansions do not appear to yield differential retention effects in jurisdictions with or without public PPL benefits. Firm PPL expansions generate retention effects when PPL expansions are made in isolation, nearly double when bundled with other family-friendly benefits, and attenuate when introduced alongside unrelated benefit changes. Retention effects exhibit diminishing returns with respect to leave duration for women, and longer policies primarily increase the retention of men. Finally, combining fertility estimates from the American Community Survey (ACS) with worker and firm 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. Retention benefits alone are insufficient to cover program costs under full-utilization assumptions, though sensitivity analysis shows positive returns under lower take-up and higher replacement-cost scenarios.