The Wages of Employer-Sponsored Welfare

Wal-Mart Watch recently obtained a memo, allegedly leaked from Wal-Mart's corporate offices, describing proposed strategies for reducing expenses associated with employee benefits. The memo, while hardly the outrage Wal-Mart's critics are making it out to be, is fascinating, and I plan to comment more on it later.

For the time being, though, I'd like to narrow the focus. I first learned of the memo via BStu of Alas (a blog), who takes exception to a perceived anti-fat bias in these policies:

Giving us all yet another reason to fight for universal health care in the United States, a recent memo from Wal-Mart indicates that the business strategy to deal with rising health care costs is moving rapidly towards discriminating against sick people. Or, at least people who look like they must be sick like old people and fat people.

The New York Times published a report based on a leaked internal memo from Wal-Mart's executive vice president for benefits. While it does a lot of hand ringing about fatness and long-term employees, there was no indication that any active discrimination was being advocated. The closest is a misguided attempt to introduce physical labor to positions that wouldn't ordinarily require physical labor like cashiers. Presumably based on the false assumption that fat people are sedentary and who will flee from physical activity.

That's not quite right. The memo doesn't contain much hand-wringing about obesity (the paragraph quoted below being one of a very few exceptions), and there's no evidence that Wal-Mart has plans to discriminate against the obese or elderly, or even to discourage them, specifically, from applying for jobs. This, from the memo itself, is the problem which this strategy is designed to address:

The team analyzed the Associate population on a wide variety of factors (e.g., attitude, health behavior, tenure), the most fruitful of which was annual healthcare spend. The so-called "low utilizers" are the most attractive Associate segment because they cost Wal-Mart less in terms of healthcare expenses and are more productive in their jobs...Moreover, this segment also showed healthier behaviors, specifically less prevalance of obesity. Unfortunately, the "low utilizers" were also least satisfied with our benefits and were planning shorter careers with Wal-Mart.

Wal-Mart analyzed the relationship between "health behavior" (such as obesity, the lack of which is mentioned as a "healthier behavior") and desirability of employees, but found that healthcare spending was a better indicator. Accordingly, many of the proposed strategies are designed to make Wal-Mart more attractive to the more productive "low utilizers" and less attractive to employees who produce less and cost more. These policies are clearly designed to discourage applicants who actually are unhealthy, not those who simply appear to be due to misguided prejudices.

Which leads us to my main point. Discriminating against the infirm sounds terrible, but it's exactly what we should expect in a cultural and regulatory climate where businesses are expected and even demanded to subsidize employees who can't pull their own weight. Like any business, Wal-Mart's out to make money, and you can't blame them for not wanting to hire an employee who costs them more money than he brings in. The difference isn't compensation---it's welfare. And when you demand that businesses provide welfare subsidies to their least productive employees, the predictable result is that businesses will do everything they can to avoid hiring them.

The belief that businesses should provide a certain minimum level of wages and benefits to their employees is based on a lie, namely that anyone who goes to work for eight hours a day, five days a week, regardless of whether he has any education or marketable skills, has earned enough money to support his two children (anti-Wal-Mart activists generally compare Wal-Mart's wages to the poverty line for a family of three), plus everything that modern medicine has to offer, should any of them need it.

But the world doesn't work that way. Sometimes people get sick, and they can't work hard enough to support themselves. And sometimes people have children before they have the skills and education to earn enough to support them properly. And sometimes those children get sick and require expensive medical treatments. These are all very lamentable circumstances. But they don't make these people any more productive, and there's no guarantee that they'll be able to produce enough to justify wages high enough to provide for them and their families.

If you believe that government should force others to subsidize people in these circumstances, that's fine. Let's not fight that battle today. But if it's society's responsibility, then it's a responsibility that belongs to all of society, and the best way to do it---if you insist that charity can't do the job---is to provide a direct government subsidy to the needy. To try to dodge this responsibility and pass it off onto businesses through burdensome regulations that render the most helpless members of our society unemployable, all the while hiding behind righteous talk of corporate responsibility and greedy exploiters, is dishonest and destructive, and it does a disservice to all of us, rich and poor alike.

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Er, yeah. Taken to its

Er, yeah. Taken to its extreme, we get these kinds of results, where the only people who will employ women in The World's Most Enlightened Country (Sweden) are the people who enforce the policies (the government).

I had a different take on the memo.

You know, with massive

You know, with massive caveats given that my agenda is rather different, I rather agree with you. The whole employment->benefits scheme in the US is utterly ridiculous and leads the hugely perverse effects. But just as much a problem with the system is a ridiculous overestimation of the effects of moral hazard.