Tuesday, January 17, 2006

Making Wal-Mart Pay More Health Benefits

A New York Times article reports on a new Maryland law, called the "Fair Share Health Care Fund Act," aimed at Wal-Mart:

The Maryland legislature passed a law Thursday that would require Wal-Mart Stores to increase spending on employee health insurance, a measure that is expected to be a model for other states.

Under the Maryland law, employers with 10,000 or more workers in the state must spend at least 8 percent of their payrolls on health insurance, or else pay the difference into a state Medicaid fund.

What would you expect to be the result of this law?

What do you think will happen to the wages that Wal-Mart pays its workers?
What do you think will happen to the amount of workers that Wal-Mart hires?
Who gets the benefit from this law?

What information would you need in order to tell if this law is effective (helping low skilled workers) and what is your initial instinct?

It doesn't take much to go from our textbook examples to evaluating this policy.

10 comments:

Devin Arnold? said...

Companies who employ a large number of workers in Maryland or other states who follow suit may look to move their business elsewhere. This may not be true for retailers like WalMart, but moreso tech companies or other managerial firms. They will likely decrease in order to compensate for the health care. Elderly or poor workers at WalMart will benefit. I really have no idea how to see if it works, maybe surveys of those workers Old dude at WalMart

Anonymous said...

The law will probably cause Wal-Mart to decrease wages for its workers in order to lower costs. Consequently, fewer workers will be hired as well. I agree with Devin’s point that the law may cause some businesses to move their operations out of Maryland to avoid the law. The law will benefit the elderly and the people that cannot afford insurance because those people are in need the most. It would be helpful to know specifically how much of Wal-Mart’s labor force actually needs health insurance to determine how effective the law really is.

-Ravi Bhatia

Hagar the Horrible said...

partially responding to Ravi: I would think that Wal Mart already pays minimum wage to a large share of its employees so that it can't really reduce their wages much. Consequently, their cost of operation will increase. The will need to raise price to remain competitive (in a competitive market model) and consumers will "suffer." Wal Mart will also be forced to employ less people (again, in a perfect labor market model). The people who stay employed will gain, the ones that will be laid off or that will not be hired (but would have without the law) will lose.

This makes the law sound like it is not very attractive. An interesting question here is, however, how far this type of analysis should carry you. Of course, if there were no minimum wage Wal Mart could offer even cheaper products and would probably also be able to employ more people. This could be seen as beneficial. Now if Wal Mart didn't have to make sure its facilities are safe for workers, they could probably lower cost even more... and employ more people. If they didn't have to make sure people have "humane working conditions" they could lower cost even more... and employ more people.

How far do you guys think we, as a society, want to go with this? When is something economic exchange, when is it exploitation?

This question also directly translates to sweat shops in third world countries. Should they be closed down (or regulated to the extent that they move somewhere else) and then the people are out of work? Or should they be allowed to operate freely and give jobs to people, albeit low-paying, dangerous, inhumane, &c?

Anonymous said...

This law is in favor of low skilled workers who recieve a low wage and want an increase in health benefits.

My initial reaction was that helping the less fortunate is a good thing, but how could you find out that it was actually working and the employees were doing a good job? The health benefits could be used as an incentive and before the customer checks out, he or she could rate the quality of service of the employee. Even though it might be a pain for the employee, it would force him to work hard and try to help the customer to the best of his ability. More people would want to go to Wal Mart because of the greater quality of the average employee.

The down side of this is that it might be a hassle for the customer to remember the name of the employee and would take to much time rating the employee. However, I think this cost is less than the overall benefit of the employees' health insurance and production of Wal-Mart.

Paul Moustoukas

Anonymous said...

If the people at walmart are getting minimum wage... then i agree with hagar and i think the law will hurt the consumer because of costs of operation and walmart will hire less people.

However, if Walmart can lower the wages, they could do that and use the benefits as a replacement to salary. It may seem more beneficial to be able to say that a worker gets a slightly lower salary but lots of benefits than a higher salary.
-kelly gaetano

Anonymous said...

If Wal-Mart does not pay their workers minimum wage, then I think the workers wages will decrease in order to make-up for the added benefits. This way, Wal-Mart will lower its cost of offering all of its workers health benefits. Another way they will lower their cost of health benefits is by cutting the number of workers. In a way, the low skilled workers are helped because they are now offered health benefits, but because this law also lowers wages and decreases job opportunities, these low skilled workers are also hurt. Therefore, in order to decide if this law is effective, we must know how much Wal-Mart lowers the salaries and how much they cut back on workers.
-Emily Freebairn

Carl Youngdale said...

I think there should be a law that stops Wal-mart from blocking the unionization of their workers. This way, Wal-Mart employees could have power in numbers and we wouldn't have to pass laws that micro-manage Wal-Mart's procedures.

Anonymous said...

Although this law seems beneficial to Wal-Mart employees at first glance, it will likely result in overall lower wages and a decrease in job availability because the employer will have less inclination to hire more workers. Workers with a low economic status will benefit most from this law, as they are the ones who could not afford health insurance in the first place, likely resulting in the adoption of this new law. I believe that law will be affective, in order to prove this one would have to poll the workers themselves to see how many of them felt that they did not have enough health insurance before this law was put into place.

-Stephen Dysart

Anonymous said...

Maryland is passing this law, in my opinion, without sufficient thought. Of course Walmart will react by lowering wages and lowering the number of people on their payroll. It is in their best interest. From this, there will be more people without jobs all together. The people that are still working will benefit from the heath insurence. However, being lower income workers already, will they agree with the wage cuts for the health insurence? You would need to know first, whether or not the benefit from the insurence would override the increase of people without jobs and lower wages for the people left with them. If it does, then it is a good plan. But initially it just seemed not completely thought out to me.
-david hale

Anonymous said...

In Maryland right now, there is exactly ONE company with more than 10,000 employess -- that would be Wal-Mart. I don't think that it's unreasonable to conclude that the legislature in Maryland was "going after" Wal-mart with this law... So...

Wal-mart is not going to eat this new 8% thing on their own. No company would. That money, ultimately, will either come from the employees or the customers. Now, to recover the cost on the employee side would require a lessening of employee wages and/or getting rid of some employess to lower payroll costs. Then, if there was some sort of public outcry, Wal-mart could just say that the new law is to blame, not the company.

The problem with that approach is that no one would buy it -- despite the fact that it's a true statement to a large degree. Corporations are villified in the press all the time, and most people would still feel that "Wal-mart has plenty of money", and see an injustice in the lessening of employee wages

Now, if you're a Wal-mart executive, and believe that this law was targeted at your company alone, you probably already think that there are people in the state that are out to get you -- and don't want to give them the chance.

Thus, to maintain a healthy public image, it's more likely that Wal-Marts in Maryland will raise prices a bit to compensate for the new costs, thus putting the burden on the customer base rather than the employess. Thinking about this honestly, very few people would probably notice the price changes, and on top of that, by having the consumers pay the new cost rather than the employees, you spread the cost over a much larger group, so everyone's share is much less.

-R. Holman