Over the past year, several companies including Accenture, Blackstone, Johnson & Johnson, Microsoft and Netflix have expanded their paid leave policies to give employees more time off to care for their newborns or adopted children. “It’s an idea whose time has clearly come,” says Stewart Friedman, Wharton practice professor of management and founding director of the Wharton Work/Life Integration Project.
“Employees want work to be more flexible, and companies are realizing we have to be better. It’s not just an economic issue; it is a moral imperative. As I’ve been saying for decades, we need a new national policy.”
A national policy remains a distant dream for now, but one city is leading the way: Washington, D.C., which could soon become the most generous place in the country for new parents. Under a measure proposed by the city council there, nearly every part-time and full-time employee in the District would be entitled to 16 weeks of paid leave to care for a new baby, convalesce from an illness, or look after a sick family member.
The policy has many potential benefits including helping D.C.-based companies recruit and retain top talent; increasing employees’ productivity and commitment; narrowing the wage gap for women in the city; and improving the tenor of the District’s workplace culture. But legislating and enforcing such a policy presents challenges, too. To fund the law, D.C. employers would need to pay a new tax — a prospect that’s already stirred some grumbling from businesses there. Questions also remain as to how organizations can institute the policy in the most efficient, least disruptive ways.
Friedman concedes that the bill’s implementation will “not be easy” and could “create some hurdles.” But he’s sanguine that its passage could spur more businesses or even the federal government to enact new paid leave policies. “ is a way to prove the case and show what’s possible,” he says. “This is how innovation spreads.”
‘Beyond the Tipping Point’
While perhaps there has never been a better time to have a baby in Corporate America, it’s still not as good a time as it is in, say, France or even Brazil. The U.S. is among the least generous nations for new parents. In fact, the U.S. is the only industrialized country — and one of only three in the world — that does not provide any paid leave at all. (The others are Suriname and Papua New Guinea, according to data from the International Labor Organization.) By contrast, women in France receive 16 weeks of paid maternity leave; women in Germany receive 14 weeks; and women in Poland receive 26 weeks of paid leave courtesy of social security. China, Zimbabwe and Brazil, meanwhile, are among the countries that provide new mothers with at least 14 weeks of paid leave.
“When it comes to parental leave, the U.S. is at the bottom of the list of developed countries,” says Lotte Bailyn, emerita professor of management at the MIT Sloan School of Management.
The situation for American parents hasn’t changed much since 1993, when President Bill Clinton signed into law the landmark Family and Medical Leave Act, which provides employees with 12 weeks of leave for the birth or adoption of a child. At the time, the law was considered a win for working families. The law, however, does not require employers to compensate employees during that time. It also does not cover employees who have worked at a given company for less than a year.
Lately, though, there has been a shift in the tide, notes Bailyn. Earlier this year, President Obama signed an order granting six weeks of paid leave to federal employees after the birth, adoption or foster placement of a child in their family. And in September, the Labor Department said it was directing $1.55 million to help state and local governments investigate paid leave policies.
The proposed plan in Washington, D.C. “is a way to prove the case and show what’s possible. This is how innovation spreads.”–Stew Friedman
“There is beginning to be a sense of embarrassment of where we sit on this global issue [and so] we’re starting to see some momentum,” she says. “Obama is pushing it, and some states have passed laws. The Labor Department is calling for action and the Democratic candidates are talking about it in debates.”
During the October democratic debate, Sen. Bernie Sanders (I-Vt.) called for the U.S. to bring its family leave policy in line with other countries. “You see every other major country saying to moms that, when you have a baby, we’re not going to separate you from your newborn baby, because we are going to have medical and family paid leave, like every other country on Earth,” he said.
One reason for the increased attention to paid leave is demographics. Women today comprise nearly half of the labor force, and more than 40% of mothers are now the sole or primary source of income for the household, according to a recent report by the White House Council of Economic Advisors.
The issue is part of our national conversation, according Nancy Rothbard, professor of management at Wharton. “We are living in the Era of Lean In, and so it’s relevant for women to ask: How can we lean in if we don’t have support?” she says. “Companies and cities that are on the leading edge take this question seriously.”
There is also more attention being paid to issues of economic inequality. Some policymakers say that benefits like paid family leave help address the widening gap between rich and poor by allowing working families to take leave when they otherwise couldn’t afford to.
Another explanation: the intensifying war for talent. The improving economy and job market has heightened competition for the best and brightest because now “workers have more options,” says Rothbard. “This is what keeps HR executives up at night: They are afraid of losing skilled employees at critical points in their careers. And they recognize that these policies are a real incentive for some people to stay.”
And by “some people,” companies “don’t just mean women,” she says. “The fact that this benefit is being offered to both men and women helps tremendously with the sense of fairness.”
In addition, says Friedman, the cultural shift in marriage to an equal partnership results in both partners contributing to the household coffers and childrearing. After all, modern dads change diapers, give bottles and do daycare pick-up and drop-off, he says. “With rising numbers of women in the workforce and rising numbers of working men who need more flexibility to be the kind of fathers and husbands they want to be, we’re beyond the tipping point.”
Against a backdrop of bitter partisan gridlock in Congress, much of the movement on this issue is coming from the private sector. A recent survey of employers by the Society for Human Resource Management (SHRM) found 21% of U.S. organizations offer paid maternity leave beyond what is covered by short-term disability or dictated by state law. That number is small, but it still represents a big rise from the 12% of companies that offered paid maternity leave at about the same time last year.
“When it comes to parental leave, the U.S. is at the bottom of the list of developed countries.”–Lotte Bailyn
The technology sector has made the biggest waves. Google, for example, provides 18 weeks of paid maternity leave; parents are also afforded up to 12 weeks of paid “baby bonding” time during their child’s first year. Microsoft, meanwhile, recently announced that starting in November, new mothers are eligible for up to 20 weeks of paid leave, while new fathers will be able to take 12 weeks of paid time. Netflix is the most generous of all: The company now offers most new parents on its payroll up to a year of paid leave.
A cynic might point out that enhanced parental leave policies are especially critical for technology companies because they have a particular problem with women leaving, but Friedman maintains the industry is trailblazing new policies and practices. “Tech is spreading ideas about what’s possible, and companies like Netflix are becoming standard-setters for what will become the new normal,” he says. “People in the manufacturing sector see what’s happening in the tech sector and they wonder, ‘If they can do it, why can’t we?’ Things do change.”
A Generous — but Potentially Expensive — Program
Indeed, things could change rapidly if the measure in Washington, D.C., passes. The legislation, introduced in October, would offer unprecedented coverage: full pay for 16 weeks for workers making up to $52,000 a year. Almost all D.C. employees are eligible.
The benefit would be paid for by a fund created by a new tax levied on D.C. employers. The fund, which is similar to states’ unemployment insurance pools, requires every employer in the city to pay into it on a sliding scale. Employers with the District’s highest-paid employees would pay the equivalent of 1% of the salaries of employees who earn above $150,000 annually per worker, according to the Washington Post.
Paying for the program this way makes “it a little easier to administer,” according to Peter Cappelli, professor of management at Wharton and the director of the school’s Center for Human Resources. “The burden is spread so it’s less onerous on small employers than if they had to pay for it out-of-pocket.”
It’s a generous program, which also means, “that it’s also pretty expensive,” he says. “It represents a 1% increase in labor costs just for this one benefit. In economic terms, it might be a little too generous. In other words, if an employee wanted to return to work for any reason [before his or her official leave was over], he or she would probably decide against it because he or she would be giving up free money. It changes people’s decision-making.”
While supporters of the measure say that a citywide paid parental leave policy would be a competitive advantage for the District to attract highly skilled employees, Cappelli notes that the policy could also keep businesses out of the city. “In Philadelphia, where there is a wage tax of 3.5%, there is evidence that employers choose to stay out of the city rather than deal with the hassle of the administrative requirements to manage it,” he says.
In light of this, Iwan Barankay, a management professor at Wharton, predicts “strong resistance” in D.C. to the proposal. He points to the well-known economic principle that when one “jurisdiction imposes more costly regulation, then some employment can be lost to neighboring places — especially in businesses with slim profit margins and high labor costs.”
And yet, there are many cases across Europe where a country implements costlier regulation with little effect on employment. Take Germany, for instance. “Germany has more generous labor market policies than neighboring countries like Poland, yet not all labor is exported to Poland,” he says. “There is not a lot of evidence in support of the hypotheses that more generous leave policies will increase unemployment [in D.C.] or a jump in the number of companies there filing for bankruptcy.”
A ‘More Committed Workforce’
It’s also quite likely that the perceived costs of this paid leave program are outweighed — or at least balanced out — by its benefits. Research suggests the benefit could improve profitability and productivity — or at the very least won’t dent them. According to a study on the impact of California’s paid parental leave program, the vast majority of employers said the benefit had either a “positive effect” or “no noticeable effect” on productivity, profitability and performance.
“[Employers] are afraid of losing skilled employees…. And they recognize that these policies are a real incentive for some people to stay.”–Nancy Rothbard
Barankay points out that these kinds of plans could also help with retention. “Leave policies help with workplace productivity, not just because people can get proper rest and time off, but more importantly because companies can retain their employees and their skill sets,” he says. “The biggest concern for a company is to have people who can be effective in the workplace and be cognizant about routines and workplace networks. If a person has to quit a job because there is no leave policy, then all that human capital imbued in that employee is lost and will be hard and costly to replace.”
The plan could have a positive impact on employers’ ability to retain women in particular. Study after study indicates that women are more likely to return to their jobs and stay in the workforce if they are provided paid leave.
“A danger is that employers will be so focused on the cost of [providing the benefit] and so they’ll do it incorrectly,” says MIT Sloan’s Bailyn. “They will only see the immediate cost and they won’t realize the positive feedback; they’ll fail to acknowledge that this could lead to a less transient, more committed workforce.”
Put simply: Employees will work hard to make this benefit successful since it’s in their best interest to do so. “They’ll be more trusting and more productive, which will reduce turnover and almost make up for the cost,” says Bailyn, adding that the benefit could also improve the workplace culture. “It takes away the ‘us against them’ dynamic and collapses employer and employee interests into one. The employee has a sense of gratitude, which leads to reciprocity and additional effort to helping the system work.”
Still, even supporters say that implementing a mandate like this requires built-in support mechanisms. For instance, small and medium-sized firms often face difficulties when any one individual team member leaves for a period of time because it places a greater burden of work on the remaining employees. The plan would have to help these firms adjust.
“Luckily there is a cottage industry emerging that helps companies prepare for these transitions, helps other employees step in and grow, helps the individual on leave stay connected in small doses while he or she is away, and helps the team manage the workflow,” says Friedman.
The point is, he says, is that, “it doesn’t have to be a zero-sum game. Companies need to say: ‘We want this to be a win for you and a win for us.’”