On March 14, 2020, Florida Senate Bill 889 was "indefinitely postponed" and "withdrawn from consideration. The bill was titled the "Florida Family Leave Act." A similar bill was also introduced in the Senate, Senate Bill 1194. That bill also was "indefinitely postponed" and "withdrawn from consideration at the end of the 2020 session.
There are those who will have an instant reaction that there is already a Family Medical Leave Act (the FMLA), and a question of why a state statute is therefore needed. The question is, effectively, what would this bill add to our lives. The most obvious distinction between the FMLA and the Florida proposals was that the Florida bills sought to establish leave with pay.
A critical part of the legislative process is often the analysis of bills provided by legislative staff. These reports strive to provide an outline for both legislators and the public, regarding how a bill's provisions might impact other statutes, budget, and the state. Neither of these bills was the subject of such an analysis in 2020.
Senate Bill 889 would have "provide(d) paid family leave to employees for the birth, adoption, or foster care placement of a new child." The proposed legislative finding in the bill notes that most Florida employees "are unable to take family leave because" of their financial resource allocation. There is also an allegation that some will nonetheless take leave and as a result increase "dependence on the state's welfare system." This bill would have required an employer to offer a 90-day leave with full pay and benefits to any employee "employed by the employer for at least 18 months."
Senate Bill 1194 was similarly focused on "birth, adoption, or foster care placement." It likewise included legislative findings regarding the importance of parental bonding, the financial struggle to take time off from work, and the impression that family leave impacts the "reemployment assistance program" and creates or encourages "dependence on the state’s welfare system." This bill similarly provided for the 90 day leave with full pay and benefits to any employee. Neither proposed bill included such benefits for "independent contractors."
Inherent in these statements is perhaps that businesses should shoulder the expense of work absence rather than the government ("reemployment assistance program" and "the state’s welfare system"). When there is expenditure by the government, that is money that the government has collected from taxpayers (in Florida, those who make non-grocery purchases generally pay sales tax, which funds the government; in other states, those funds may be drawn similarly or from a state income tax).
With the proposed family leave bills there is thus a transfer that occurs. Florida's minimum wage is $8.46 per hour. A 40-hour work week would yield $338.40 (for those fortunate enough to obtain such hours; the Obamacare repercussions on full-time employment continue to resonate with some in America. A goal of driving health insurance enrollment has made full-time employment an impracticality for many as companies continue to strive to keep individual's work hours below minimums for mandatory health insurance). That figure equates to a monthly income of about $1,353.60, an annual of about $16,243.20.
Businesses generally exist for the purpose of making money for the owners or shareholders of that business. There are a fair few Americans who see things differently and believe that business should exist for the benefit of those who toil there, or for the community in which the business is located. Media programs are often focused on how difficult it is to exist on the pay and benefits that unskilled labor generates in the marketplace. It is conversely somewhat rare to see programming that focuses on the challenges of owning and managing a small business, complying with various regulations, and competing in a marketplace.
In business, each "cost" is considered in setting a price for the resulting good or service. Some costs are "fixed," such as the rent on a facility, many utilities, and pay for salaried employees. Others are "variable" such as the supplies that are used, hourly wages, and advertising. Each of the costs is a contributing input that results in the product or service which is the output. The market determines what consumers will pay for that output, in most instances. And, that consumer choice is driven by their personal perceptions of product quality, comparisons with competing products/services, convenience, and an array of variables. As our markets have "globalized," competition may come from the business next door, in the next state over, or from across the planet.
An employer manages the volume of input costs in order to provide the good or service at a price that remains competitive. If the price is not competitive with comparable community-available alternatives, then consumers may elect the alternatives (purchase from another business, forego the product or service). An hourly employee earning minimum wage (above) over 18 months (about 77 weeks) would earn $26,056.80 ($338.40 x 77). That cost would be factored into the value of the company's good or service produced in that time. That cost would contribute to establishing the price the company charged.
But, under the paid family leave proposals, an employer might be liable for an additional 90 days (almost 13 weeks) of payroll when the employee is on Family Leave. That thirteen weeks would be $4,399.20 ($338.40 x 13). Thus, the labor cost for the product or service this one employee creates, over a ninety week (77 worked, 13 on leave) would be $30,456 ($26,056.80 + $4,399.20).
During the thirteen weeks, as the business is paying that employee to be on leave, the business also has to replace their labor. Thus, during those 13 weeks, an additional $4,399.20 is likely expended to maintain production. Or, alternatively, perhaps some employees not on leave would absorb the tasks and duties of the on-leave employee (which might lead the employer to question whether the business is overstaffed generally). Thus, the total labor cost for maintaining production or service over that 90-week period is likely $35,855.20 ($30,456 + $4,399.20).
The average cost per hour without family leave over that 90 weeks would be $8.46. The average cost over that same 90 weeks (3,600 hours), during which one employee is on leave at full pay and a second employee is brought in to replace their labor, is $9.96 per hour ($35,855.20/3,600 hours). In this example, using minimum wage, the cost to business of leave might average about $1.50 per hour ($9.96 - $8.46 = $1.50). In this simple example, the cost of labor for one employee position increased by almost 18% ($1.50/$8.46).
This does not account for what it may cost the business to continue health insurance for the employee (or other benefits) during the 13-week absence. Some estimate the employer cost of health insurance is about $5,655 annually or $108.75 per week. That cost would continue in those instances that involve a full-time employee (or at least one working over 30 hours and thus mandated health coverage). Thus, there is the potential for greater cost differentials if the example employee compensation and benefits are higher.
There is every potential that an employee might return to work after paid leave, thus the periods (before and after the leave) might well greatly exceed the 18-month minimum. As those work periods expand, the percentage by which costs increase would diminish. But, this simple mathematical example does not account for the payroll taxes (FICA alone is 7.5%) and other payroll-associated expenses that would potentially increase this 18% in even the simplest of examples. There are many factors that could impact this analysis and the actual effect.
When a business sees an increase in costs associated with the delivery of a product or service (output), then there is potential for an increase in the price for that output. When the price of output increases, ultimately it is likely not the business that absorbs that increase. The consumer will most often pay the price of that Family Leave in the price of what we consume. If the business cannot increase price, because of competition (competitors who are not faced with similar costs), then the cost increase may not raise prices and could lower profit instead. If profit decreases sufficiently, the business may elect to close rather than continue to struggle with the costs and risks associated with the potential resulting profit.
Would prices increase the same 18% this employee example produces? No. That would require that each employee of each employer would undertake a paid leave, with the same minimum (18 months) employment preface and other factors remaining constant. That is highly unlikely. The economists and actuaries would instead suggest that these costs would have to be further researched (minimum wage versus higher, and much higher wage earners) and that the frequency of "birth, adoption, or foster care placement of a new child" would have to be considered in predicting overall costs.
With those frequency predictions (how many will take the leave) and population refinements (what wage groups would they be in), then a viable prediction of actual economic impact could be calculated. Regardless of the percentage, however, the ultimate effect would be that consumer's prices or business viability would be impacted by such a proposal. Whether that impact would be offset by lower taxes (as a result of the savings to other social programs the legislature mentioned) would similarly require more intense mathematical analysis.
With less discussion, the federal government expanded medical leave requirements in 2020. The Families First Coronavirus Response Act was rapidly deployed this spring. The law has a specific duration, expiring December 31, 2020, though its policies could be extended (or could be the model for future proposals). The Act provides less than discussed above, up to 80 hours of paid leave (full) if an employee is quarantined due to the effects of contracting or being tested for this virus, or (two-thirds pay) if an employee must miss work to care for someone quarantined. That 80 hours is roughly two weeks' work.
The math with a solitary employee here is similar to that above. This payment is required for "all employees." But for the sake of an example, I consider one that has been employed for five weeks, or 35 days. Thus, returning to Florida's minimum wage, $8.46 per hour, and a 40-hour work week, yields $338.40 as a labor cost. Over thirty-five days, this is approximately $1,692 ($338.40 x 5). The cost per hour worked is an average of $8.46.
When this is extended to seven 7-day weeks, five worked and two for federal leave (80 hours), the cost increases to a total of $2,368.80 ($338.40 x 7). The average rate for the five weeks of work performed (200 hours) in that period is now $11.84 per hour ($2,368.80/200). The cost of the labor has increased about 40%. Certainly, as in the example above, not every employee will require quarantine, and thus be entitled to this benefit. However, the potential exists for an increase in the labor cost for the business, and a resulting increase in our cost for consuming that business' product or service.
The Families First also provides for "up to an additional ten weeks" at the "two-thirds" rate" if an employee must miss work to care for a child due to closure of a "school or child care provider" because of COVID-19. Using the above example, this would potentially add ten weeks of pay at $225.60, or $2,256.00 (338.40 x 2/3 = $225.60). Over a period of 17 weeks (5 worked, 2 on quarantine at full pay, ten on leave at 2/3 pay), the total payroll expense is $4,624.80 ($1,692, plus $676.80, plus $2,256.00). For the five weeks (200 hours) of labor actually delivered, this equates to an effective rate of $23.12 per hour ($4,624.80/200), an increase of 173% from the $8.46 per hour.
This example similarly ignores the costs of taxes and other similar expenses. And, notably, the example is only a valid predictor of increased labor cost if 100% of employees in a particular business are entitled to such payment(s). This is unlikely, and therefore while this increase is potentially possible it is improbable.
The numbers, however, support that paid leave from work may nonetheless present a significant influence on the price of goods and services in our economy. But, the fact is that in this context, much the same as in the workers' compensation injury context, Someone has to Pay. In other words, the worker in quarantine may suffer the economic loss of the two weeks without income, or the employer might. The employer is postured to pass that cost (in part, perhaps not in total) to the customer, while the worker is not. Thus, the decision has been to pass the "cost" of the individual to society, to "socialize" that cost of the pandemic.
A business may absorb this expense from its profit. But, instead, there may be price increases. Society, faced with this cost increase, will make individual purchasing decisions that may have collective effects. If the price of pizza increases by 40% or 173% (or even 10%), consumers may demand less pizza (shirts, shoes, haircuts, etc.). Contrarily, if a worker's income decreases 100% (as they are in quarantine with no such protection and receive no pay), that worker is almost certain to demand fewer goods and services. There is a loss in either instance. The question remains not whether there will be a cost, but who will pay that cost.
As between the individual and socialized cost, the decision has been made by the federal authorities regarding Coronavirus COVID-19. The application is national and thus any inflationary price effect is unlikely to create a competitive advantage (all businesses in all regions are similarly affected, though disparity may persist due to different localized infection and quarantine rates). But, if similarly enacted on a more local basis, such as the recently proposed Florida bills, the effect would similarly be more local. The cost of goods and services in Florida might thereby increase disproportionately to costs elsewhere (unless the taxes were decreased based upon the savings to the government programs mentioned above).
Any disproportion from resulting increases in price might lead to an economic advantage for a business outside of Florida compared to a provider here. A consumer might purchase a product for a lower price from a Georgia manufacturer than from a Florida manufacturer because the Georgia company does not face such a cost. Such comparative advantage might not affect services as much (people will buy haircuts locally). But, there is the potential for such effects in the age of online shopping and in the economic segments like manufacturing.
The implications are far-reaching. The considerations are a governmental balance of what costs, and how much costs, to socialize. The foundation for the analysis is far from a free-market economy concept and illustrates the extent to which government has come to participate in the decision-making of both producers and consumers.
