Increasing parental leave isn't just good for parents

San Francisco this week became the first city in the United States to pass a law guaranteeing fully-paid parental leave.  The city council unanimously passed a measure on Tuesday granting new parents six weeks of paid leave.

While many companies in the tech sector--including Netflix (NFLX), Facebook (FB), Alphabet (GOOGL)  Ebay (EBAY), and Yahoo Finance's parent company Yahoo (YHOO)--offer generous paid leave packages, this benefit has not extended to the broader population. A report last year showed that only 12% of American companies offer paid maternity or paternity leave.

This is a hot-button topic as it seems to affect women more than men.

Morgan Stanley analyst Eva Zlotnicka laid out an in-depth analysis pointing to the importance of offering benefits aimed at retaining women in the workforce.

“Gender diversity has not only social benefits, but also commercial, macroeconomic, and regulatory relevance for companies,” she wrote.

“Gender diversity contributes to employee inclusion, satisfaction and engagement,” she added, which has been positively associated with stock returns, as shown in the exhibit below.

Zlotnicka points out that parenthood is one of the major obstacles to women in the workforce as evidenced by the employment rate of women with children being lower than for women overall.

“The introduction of more flexible working practices, support for childcare and more equal parental leave arrangements have contributed to rising female participation rates in developed markets,” she wrote.

As YouTube CEO Susan Wojcicki wrote in a Wall Street Journal op-ed, when Google increased paid maternity leave from 12 to 18 weeks in 2007, they found the rate at which new moms left the company fell by 50%. "It’s much better for Google’s bottom line--to avoid avoid costly turnover and to retain the valued expertise, skills, and perspective of our employees who are mothers," she wrote.

In 2004, California became the first state to implement a paid-family-leave policy that enables most working Californians to receive 55% of their usual salary (up to $1,104) for a maximum of six weeks. According to a report last year from the President's Council of Economic Advisers, more than 90% of employers affected by California's paid family-leave initiative reported either positive or no noticeable effect on profitability, turnover, and morale.

And in addition to impacting performance of companies, investors care too. According to a 2014 USSIF report on investing trends, $578 billion of US institutional investor assets in 2014 were invested using the social criteria of equal employment opportunity and diversity. “Given recent announcements of new investment products focused on gender and rising shareholder activism on the top, we expect these figures will show substantial growth,” Zlotnicka wrote.

And Zlotnicka wrote that the benefits of gender diversity in the workforce apply broadly to economies as well.

“The benefits of more gender-balanced economies are multiple, including higher income, higher productivity gains, higher corporate bottom lines and reduced poverty in developing countries. In aging economies, higher female participation and employment rates can also help to counter a shrinking workforce,” she wrote. The OECD estimates that a 50% reduction in the gender gap in labor force participation could lead to a GDP gain of 6% by 2030, rising another 6% if the gap is completely closed in the next 15 years.

While the ruling in San Francisco is significant, despite a lot of talk, companies have made small progress installing work/life balance programs over the last six years.

And the U.S. still remains far behind the rest of the world.