When Time Away Sparks Time at Work: Time-Off as a Source of Competitive Advantage for Innovation

Jiayi Bao, Applied Economics, The Wharton School

Abstract: The management view of human capital as a source of sustained competitive advantage has driven research on how strategic human resource practices affect organizational performance. This paper focuses on how a firm’s time-off policy can be a source of competitive advantage in entrepreneurial settings, particularly for innovation. Three types of employee time-off are examined: job-protected unpaid leave, state-funded family leave, and firm-funded paid vacation. Exploiting state-to-state variation in eligibility thresholds, I adopt a regression discontinuity design to estimate the effect of state-mandated job-protected unpaid leave on patent and intellectual property ownership. I then estimate the effect due to state-funded paid family leave through a difference-in-difference estimation using a natural experiment. Finally, the effect of employer-funded paid vacation is evaluated with a fixed effects approach as well as an instrumental variable estimation. I find that job-protected unpaid leave has limited impact on innovation, at most via the intensive margin, supporting the 1-to-N innovation. Both state-funded family leave and firm-funded paid vacation have positive effects on innovation, especially via the extensive margin, contributing to the 0-to-1 innovation.

Read the full working paper here (PDF).

Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.