Paid Family Leave and Household Economic Wellbeing Following a Birth: Evidence from California

Background/Purpose: Economic insecurity and instability are common in the time following the birth of a child and can be detrimental to parent, family, and child wellbeing. Paid family leave is expected to increase household economic wellbeing in this period by replacing wages during leave that would otherwise be unpaid and by supporting mothers’ continued connections to the labor force. In most of the U.S., paid family leave is employer-provided and rarely available to low-income workers. However, in 2004, California implemented a broadly-available paid family leave program (CA-PFL), extending this benefit to economically disadvantaged parents. Despite expectations that this type of program should boost economic wellbeing in the time around a birth, research on the implications of CA-PFL for household-level economic outcomes is limited.

Methods: To build knowledge in this area, the present study estimates the effects of CA-PFL on risk of poverty and total household income among mothers of infants (<1) and 1-year-olds. Data come from the 2000-2013 American Community Survey, which provides annual, cross-sectional information on a very large, nationally-representative sample of U.S. households. I use a quasi-experimental, triple differences research design, which isolates policy impacts by comparing outcomes among California mothers eligible for CA-PFL after implementation to unaffected mothers of older children and in other states. I estimate effects separately by child’s age (infants v. 1-year-olds) to approximate differences in policy impact from the time closely following the birth to the somewhat longer term. Subgroup analyses by mother’s educational attainment and marital status explore the extent to which CA-PFL has benefited economically disadvantaged parents, who are unlikely to have access to other forms of paid leave.

Results: Results suggest that CA-PFL—which provides six weeks of leave at 55 percent wage replacement—has little net effect on household income or risk of poverty among mothers with infants. This finding suggests that gains in the period closely following birth through the new source of paid leave may be counteracted by policy-induced increases in parents’ leave length and consequent earnings declines. In the longer term—among mothers of 1-year-olds—CA-PFL decreases risk of poverty by an estimated 10.8% (p < 0.01) and increases household income by an estimated 4.1% (p < 0.01). These longer-term gains are concentrated among less-educated and single mothers. These findings are consistent with expectations that CA-PFL will boost longer-term household economic wellbeing through the program’s demonstrated positive effects on mothers’ labor force attachment, and will be particularly important to economically disadvantaged parents.

Conclusions/Implications: Results suggest that a broadly-available paid family leave policy like CA-PFL can allow parents and infants to benefit from the positive health effects of longer parental leaves without negative economic consequences, and can improve household economic wellbeing in the longer term, with larger gains for economically disadvantaged groups. Higher or progressive wage replacement may be needed to improve economic wellbeing closely following birth. Additionally, ensuring that leave is job-protected and efforts to increase participation could help extend the policy’s reach. Study findings are especially relevant as policymakers across the U.S. consider similar programs.