It’s both. There’s literally no downside for the employer. Someone who abuses it is underperforming. You just fire them if it becomes a problem.

That's an advantage of it, but I sort of expect it wouldn't be that popular with companies if it lead to people taking significantly more time off.

California labor law regarding vacation time is relatively generous compared to other states, that's probably another part of it (my state allows use it or lose it, for example).

Works out to the same thing. They get more work time from the employee for the money they spend.