Maryland has now passed legislation (overriding Governor Ehrlich’s veto) requiring large employers to spend at least 8% of their payroll costs on health care or pay money into the state’s coffers. Only Wal-Mart will be affected by this requirement.
You can spend a semester on why this legislation is likely to hurt poor people and low-skilled workers. This unsigned Washington Post editorial gets it right:
The Maryland bill is a legislative mugging masquerading as an act of
benevolent social engineering. It is true that skyrocketing health care
costs and the growing ranks of uninsured workers represent a burden on
the state’s health system that other corporations in effect help
subsidize. But Wal-Mart employees, like the employees of other large
retailers that employ many low-wage workers, are only slightly more
likely to collect Medicaid benefits than the national average. And
unlovable as it may be, Wal-Mart serves low- and middle-income people,
both by creating entry-level and part-time jobs for people who might
otherwise be unemployed and by saving its moderate-income customers a
staggering amount of money.The legislation has prompted
imitators in 30 states. Where it passes, no one should be surprised by
unintended consequences. Wal-Mart and other targeted firms may shift
jobs or planned facilities elsewhere. Many low-wage younger workers may
still opt out of health coverage even if offered a more generous plan.
In trying to address the national problems of health care and uninsured
workers, lawmakers in Maryland and other states could inflict on
themselves a new set of problems while failing to solve the underlying
one.
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{ 17 comments }
Let's not forget the ill effects of artificially inflating the supply of money for healthcare. The last thing we need is to supply another boost to rocketing health-care costs. This will have wide deleterious effects on all consumers of health care outside the WalMart sphere of influence.
What a textbook example of rent-seeking (the biggest backers have been the local supermarket chains and their unions, both frightened by the competition of Wal-Mart). These guys have been trying to leverage governmental power in other ways against Wal-Mart, including pressing for zoning regulations. Interesting comments from the union president: ""Wal-Mart is the biggest threat to our members' way of life," (http://www.wakeupwalmart.com/news/20050523-wapo.html)
Also a great example of the perversity of this kind of symbolic politics. Legislation sold as a boost for low-income workers is actually — and deliberately — most detrimental to low-income consumers and workers. Sigh.
By the way, the blog post missed a word (damage, harm,..) before " poor people and low-skilled workers."
If I were the Wal-Mart god, I'd shut the doors in Maryland. Let's see them legislate a solution to that.
Another case where a drawing a line between the responsibilities of the free market and of the socio-political systems would be helpful. Socio-political systems can't create wealth, and the free market won't solve social problems.
"The free market doesn't solve social problems" ??
I agree, but only because (relative to government) it obviates the problems.
Aaron,
It depends on the definition of "free market". I've been using it lately to mean only those activities which create wealth (value for value transactions), and using the term socio-political in regards to all other activities (redistributive transactions). I didn't bother to clarify because I've done it before, it took a while, and I'm lazy.
But, but, but, I don't want the laws of nature to apply. Maybe we can legislate it so they won't.
When I read the Times article on the story I was most struck by supporters of this legislation that cited the problem with Wal-Mart being that it attracts low-wage, low-skilled workers into Maryland.
Talk about NIMBY behavior. "Big businesses are OK, just so long as they don't encourage the poor to move to our community to try and make a better life for themselves."
If the U.S. government passed and enforced laws like this in the early 1900s, just think of how well off we'd be today?
And these people are supposedly fighting for "social justice"?
Let's get some positive analysis going:
The law as passed gives Wal-Mart an incentive to hire the 62+ Medicare eligible crowd, since the wages of those employees are NOT subject to the 8% rule.
But HOW LARGE of an incentive depends on how much Wal-Mart is on the hook for its average employee OVER AND ABOVE what it already pays in health insurance costs. That turns out to be not so much, at least as far as Wal-Mart is concerned:
Let's see, according to walmartfacts.com, the average WM employee earns $~10 an hour in MD. I'm GUESSING that the average assicoate works 32 hours a week for 50 weeks a year. At 8%, that comes out to $1280 per employee — spending required by the state of MD on health insurance/care.
With 17,000 employees making those average wages, WM has a minimum annual health insurance contribution of roughly $21.8 million.
How much does Wal-Mart ALREADY spend on each of them — on average? I'd say $1000 per head, which I get from taking the $1.5B spent in 2004 and dividing it by 1.5M associates. Hence, the number is not a pure fiction. Then WM would owe MD $280*17,000 = $4.76m a year for this "fund".
So, as it see it, the law basically fines Wal-Mart $5M a year for doing something that up to this point has been completely legal.
This is why 30K a year minds shouldnt be charged with the task of designing socio-economic orders. Now watch as Walmart goes out and hires an army of a million dollar a year lawyers to scavenge this new law for every loop hole possible and by the time they get done with it Walmart will somehow come out ok and the low wage workers will all be the ones getting screwed.
I manage a restaurant in Orlando, Florida and this reminds me of the new min wage law increase for servers. The first thing the restaurant did was cut the amount of hours servers worked, raised prices, and increased the amount of money that the servers had to pay as a tip out to the restaurant. We should never forget the fact that ultimately owners are self interested and no matter what laws you compell them to obey they will be constantly seeking new ways to get around the laws and this will always and I MEAN ALWAYS COME AT THE DETRIMENT TO WORKERS.
There have been 2 outstanding comments so far, that I would like to expand on:
First, Glenn refers to the a union quote: "Wal-Mart is the biggest threat to our members' way of life."
I believe this very well sums up the attitude of unionists, and also the reality. Yes, low prices are your bane. Yes, your low cost efficiency will put your employer out of business. Yes, your "members' way of life" is impoverishing many more people who can't find jobs because your union excludes them and strong-arms larger paychecks, "for members only."
It is ironic that someone would have the audacity to complain about pioneering business practices and low prices – ostensibly benefitting every consumer. However, in a world where ever special interest group has its own "rights" and deserves the protection of the government, creative destruction is obscured in favor of French-style "rights" to "your" paycheck and "your" job.
This is the problem when citizens, such as the union members themselves, are more versed in zero- or negative-sum partisan struggles than in basic economics.
The second sagacious comment was made by John Pertz: "This is why 30K a year minds shouldnt be charged with the task of designing socio-economic orders."
This roughly echoes a sentiment expressed a few weeks ago by Thomas Sowell, that Senators should have a salary of $1m so that we could attract more competent candidates (another part of that argument was that they would be less susceptible to lobbyists).
However, I think the solution is not to pay 6-figure salaries to state legislators but, of course, that state legislatures not interfere by writing complex regulations in the first place. They are destined to be arbitrary and foist inefficient conditions upon the market, resulting in higher prices and fewer jobs. At a time when there are "wars" between states and cities offering economic incentives to businesses, even sometimes Wal-Mart, handicapping your own economic competitiveness just doesn't make very much sense anyway.
I know Wally World is a "Favored Son" in this forum, so pardon my heresy:
I'm always tickled when Wal-Mart takes a shellacking. Today is no exception. I was filled with glee at the $172m walloping they got in CA – and the one's they're going to be getting over similar wage&hour issues coming up.
As far as I'm concerned the more they get the crud knocked out of them the better.
I do, however, hafta wonder what the Legislature in MD was smoking. This one doesn't even pass the smell test. Not only does this run afoul of ERISA (which will likely be Wally's appeal stance) it just begs common sense.
MD would have done better fining Wally World a boatload of money over some state infraction rather than trying to penalize them with specious legislation. I would bet big money it'll be overturned and that will be that. The Gov was right to veto it – this is just lousy law.
There are 31 more states (last I read) with similar legislation being proposed. Wally World is in for a boatload of trouble….much of it deserved, but there are many better ways to kill this boil on the buttocks of humanity over making lousy law…with lots of unintended repercussions.
Faultolerant — My apologies for sounding like a broken record, but I'm really curious about this: What job do you have that pays $250k per year, while you have yet to earn your first degree?
This whole Healthcare issue needs addressing. While the national healthcare systems of Europe and Canada leave a lot to be desired. They are quite efficient compared to the U.S. private system, in which 15% of the cost goes into admin. Where the UK's system only spends 5% in admin. costs. (The total of US private healthcare admin costs is larger than the entire UK National health service budget!) Also The U.S. has 3 or 4 'socialized' systems in place (depending on state) The VA system, Medicare, and Medicaid, (Plus a state variant e.g. Medical) This is 3 federally funded administrations on top of a bloated inefficient and expensive private sector, plagued with poor insurance schemes, tort issues, and understaffed hospitals. The only light I see is an increasing number of physicians tossing out insurance systems and moving to cash only.
Faultolerant: See my posting on this subject at http://blog.russnelson.com/economics/maryland-idiots.html
Russell,
I couldn't agree more with your perspective on the MD legislature. Like I said: If they hate Wally World, there are lots better ways to "get" them. (Altho I do have a question: What's with all the Wally World logos on your blog posting?)
This whole canard about Wally World having more employees on public aid than other companies is nonsense. Most states show that the percentage of Wally employees on public assistance programs is .1%-.3% higher than other companies. This is a statistically insignificant witch hunt.
The issue isn't that Wally pushes employees to these programs, it's that government has set the bar so low, and the benefits so high, that private industry IS BETTER OFF by making use of the laws as they stand. How can Wally be wrong when it follow the law?
Again, I despise Wally World and I'd be happy to burn down every store in the country. But just because I hate them and have absolutely NOTHING to do with them, doesn't mean that their critics are right.
MD just did a Big Stupid. It'll cost Wally a bit to appeal, but appeal and repeal they will.
Oh, John P., FWIW, 22-years experience in a very small, niche market can earn anyone a nice income. Writing software for large banks and stock markets with regard to fault-tolerant, real-time transaction processing is not something you'll find a lot of people doing. It takes a lot of finesse to process a billion shares a day on a major equity market or, literally, transfer hundreds of billions of dollars every day in millions of transactions for the largest 300 banks on the planet. You don't have to have a degree, you just have to be a bitjockey (And know LOTS of people to find those jobs!)
Cheers.
Thanks.