Can Employee Welfare Policies Insure Workers Against Fluctuations in Employment?

We study the effects of employee welfare policies (EWPs) on labor investments of U.S. firms. We show that EWPs are associated with a significantly weaker pass-through of industry sales shocks to firm employment growth. EWPs' insulation effect is stronger in states with less generous unemployment insurance and weaker unionization, in states with lower wage growth, and in firms relying more on qualified labor. We corroborate our results exploring plausibly exogenous variation in workforce policies from the adoption of Paid Sick Leave laws, and from industry shocks to labor ESG incidents. Our findings suggest that EWPs may insure workers against employment fluctuations.