UNANTICIPATED EFFECTS OF CALIFORNIA'S PAID FAMILY LEAVE PROGRAM

I. INTRODUCTION California paid family leave (CPFL) legislation was enacted in September 2002 and went into effect in July 2004. This legislation enabled workers to take a maximum of 6 weeks leave to care for a newborn, an adopted child, or an ailing family member. It provided about 55% normal pay that was financed by the California Employment Development Department State Disability Insurance Program through a tax on all employees. It is distinct from other U.S. job protected family leave legislation because it provides paid leave, whereas others, such as the Family and Medical Leave Act (FMLA), provide unpaid leave. Paid family leave (PFL) is becoming popular among policymakers in other states, as well. Two states, Washington and New Jersey, enacted similar PFL legislation in 2007 and 2008, respectively. PFL took effect in New Jersey in September 2009, but still has not been implemented in Washington. Other major states including Arizona, Illinois, Maine, Massachusetts, Missouri, New Hampshire, New York, Oregon, and Pennsylvania are now considering similar PFL legislation. One impetus is that a number of other nations have such programs; (1) so analysis of the effects of family leave, especially California's program, can be informative and valuable. (2) Early studies on maternity leave indicate beneficial effects. For example, Klerman and Leibowitz (1997) use 1980 and 1990 U.S. Census data to show "maternity leave statutes increased leave, but had insignificant positive effects on employment and work." This is consistent with European studies (e.g., Bertola, Blau, and Kahn 2002; Chevalier and Viitanen 2002) that basically show that women are constrained in their work activities by the lack of childcare, and that maternity rights have induced women to return to work with a higher probability post-birth (e.g., Gregg, Gutierrez-Domenech, and Waldfogel 2007; Ondrich et al. 1999). While PFL policies increase parental leave-taking and subsequent labor force participation by mothers (and to a lesser extent fathers), the law can have unintended effects that, as yet, have not been studied. Although not necessarily the case, it is possible for employers' costs to increase if they need backup temporary labor to substitute for leave-takers. Temporary workers may seem like good substitutes, but they may be less productive because they often have less motivation and training. Costs also can increase if employers bear the burden of depreciation of worker skills during time out (Edin and Gustavsson 2007). Higher labor costs to support workers who make use of the legislation, even if small, can alter employer demand for labor. If such is the case, the demand for men and older women can rise, and the demand for young (child-bearing-age) women can fall. These demand shifts coupled with increases in labor force participation, especially for young women, can result in higher young women's unemployment rates, relative to other population groups, an unintended effect. In contrast, the possibility arises that these costs can be offset. For example, if potential leaves increase retention, particularly among young women employees, labor costs can be reduced, more so for young women than other groups. Whether relative employee costs increase or decrease then becomes an empirical question. PFL can have additional effects, some beneficial and some not so beneficial. In addition to affecting the young women target group, it is possible that those males and older females who normally do not participate in the labor force might instead do so if higher wages (brought about by an increased demand for them) drive them into the labor market. On the other hand, some young child-bearing-age women might be discouraged from labor market activity, particularly if they anticipate a shift in demand toward older women and/or men. Clearly these supply and demand shifts affect the unemployment rate of young child-bearing-age women. …