IF IT BLEEDS WE CAN KILL IT
While checking ourselves for ticks we learned from blogger Arnold Kling the following:
"As the New York Times puts it,
The Maryland legislature passed a law Thursday (overriding a veto by our vile Governor Robert Ehrlich -- mbs) 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.
(Arnold continues -- mbs) "Economics says that ultimately this will reduce the wage income of low-skilled workers in Maryland. That is, Wal-Mart is not going to suddenly increase compensation for low-skilled workers. It either has to cut wages, cut hiring, or both." (Andrew Samwick of Vox, Baby concurs.)
So who is this guy "Economics," and why does he say these things?
Actually Arnold must have been talking to Milton Economics, of Round-the-Bend, Virginia. I managed to reach his brother Jack Economics, my neighbor in Funkytown, Maryland. Jack's view on this differs, but Arnold evidently doesn't know Jack.
Wal-Mart sells merchandise to people who would otherwise buy it from someone else in Maryland, so to some extent Wal-Mart jobs replace jobs with other retail establishments.
Does Wal-Mart use more or fewer employees? If more, it could drive up wages. If fewer, the opposite. Now one of the glories of Wal-Mart is its vaunted efficiency in management of inventory and sales. This efficiency could save on the costs of labor, meaning it could sell with some combination of fewer and lower-paid workers, or it could be passed along to customers in the form of lower prices or better service in the store.
Regarding the possibility of better service, Jack looked down and spit on the ground, so let's eliminate that straight-away. Fewer and/or lower-paid workers do not translate into better wages.
Perhaps Wal-Mart would substitute low- for middle-skilled workers, meaning the former's gain is the latter's loss. How much difference in skill level do we see between Wal-Mart workers and those in, say, Giant Supermarket? Methinks none whatsoever. If we grant that you have to know something to sell televisions, is there any reason to think Wal-Mart salespeople will be less knowledgeable than those elsewhere? (Jack doubts it.)
That aside, a loss of skill in the workforce is also some loss for consumers, though Arnold doesn't touch on the usual consumer benefit argument. You walk into a store and say I want a Cuisinart food processor, and the clerk says, "What's a Cuisinart"? (Happened to my wife at Hecht's.) After that there is not much point in asking more in-depth questions. But I digress. Less wages for cheaper workers means reduced local consumer demand, pushing retail employment and wages down, not up. Another factor reducing local demand is Wal-Mart's absentee ownership. The owner of a Maryland hardware store is going to spend profits earned from the store locally to a greater extent than Wal-Mart's owners.
The state's move to raise the cost of labor for Wal-Mart could actually induce it to take pains to impart more skills to its workforce, to better justify its increased costs.
The chief motive in Maryland rests in the failure of Wal-Mart and others to provide adequate health insurance, resulting in a higher cost for taxpayer-financed Medicaid. Arnold's conservatarian solution: kick 'em off Medicaid! What a card.
On this score, our friend Ezra is also confused. He offers numbers to show that Wal-Mart does not "abuse Medicaid" because it doesn't suck as much as other retail stores. We believe he has improperly set the dials of the Suck-o-meter. The retail sector as a whole sucks because it shifts the costs of employee health care to the taxpayer.
Ezra says the Maryland law is too narrow; it should cover more firms. He ignores the fact that once a law is on the books, incremental expansions are easier than going for a large ball of wax at the start. Social Security, for instance, started with horrible, de facto exclusion of minority workers. Ezra's great grand-daddy might have written a column denouncing the bill as racist, and he would have been right, but wrong.
The Maryland bill is a good first step in mandating employee coverage more broadly. Where better to start, but with companies that are the biggest, most predatory, and least considerate of their workers? If Wal-Mart is so damned efficient, it can bear this cost better than others.
Another possibility is that Wal-Mart says the hell with you, we're bugging out of Maryland. So far it has uttered no such threats. Maryland's consumers aren't going anywhere, so if Wal-Mart wants to sell to them, it has to be there. And Wal-Mart wants to sell everywhere. In this sense the Maryland measure is in the nature of a tax on an immoveable asset -- the ability to sell in Maryland. Such taxes are economically advantageous because the taxpayer cannot escape and in so doing, reduce economic efficiency. It's a little like a tax on land.
Weep not for Wal-Mart. The next step is to spread the love to more business firms, and move on to more states. Wal-Mart is spreading its malignant brand of industrial relations global, but it is vulnerable locally.
How can Wal-Mart cut wages when they're already paying minimum wages or near to it?
It kills me that right wingers are already complaining that the Maryland move will hurt workers. Like Wal-Mart's drive to the bottom and its dependency on tax dollars isn't already doing that.
One right-wing host on a Milwaukee radio show today said workers can just quit and go get jobs elsewhere, voting with their feet. And how is that possible when Wal-Mart effectively controls more and more local job markets?
January 13, 2006 2:39 PM | Reply | Permalink
"Another possibility is that Wal-Mart says the hell with you, we're bugging out of Maryland. So far it has uttered no such threats. Maryland's consumers aren't going anywhere, so if Wal-Mart wants to sell to them, it has to be there."
According to the NYT story:
---
Debate was particularly emotional among representatives from Maryland's Eastern Shore, where Wal-Mart recently announced plans to build a distribution center that would employ up to 1,000.
Wal-Mart executives have strongly suggested that they might build the center elsewhere if lawmakers passed the health care bill.
---
Nothing is certain, but I think Arnold's suggestion is probably right: either lower wages, lower unemployment, or both. We'll have to wait and see.
Second, it isn't clear to me why liberals are upset that many Wal-Mart employees are covered by government health insurance. Did I miss something or don't most liberals want every American to also be covered by the government?
January 13, 2006 2:56 PM | Reply | Permalink
THere are two elements to this. The first is Wal-Marts scale, which has tremendous effects on the behavior of other companies. Their system creates pressure beyond retail to shed employer provided healthcare.
The second issue is that Wal-Mart is competing against a set of mom and pops with little in the way of benefits as well as against a set of unionized retailers with relatively better (but still not great) benefit packages. Wal-Mart puts them out of business thanks in part to its ability to shift healthcare cost to the feds.
The traditional way employees in union shops could maintain their benefits was by organizing the competition to prevent a bottom feeder on salary and benefits from getting a competititve advantage. In today's world, with federal labor law being an enforcement free zone, they don't have that option. You can't expect Wal-Mart's effort to shift the playing field (and that's what this is, no matter how Sebastian Mallaby sees it) to have no conesequence. I'm not above a little blood for blood, and that frame appeals to me and other liberals as a question of justice and accountability.
January 13, 2006 3:52 PM | Reply | Permalink
Did I miss something or don't most liberals want every American to also be covered by the government?
You missed a lot. We want every American to have health care insurance, and that insurance to be designed to allow the insurance carrier to pressure the health care industry to reduce their advertising costs, reduce their obscene CEO pay packages, reduce their obscene profits, thus reducing the rapid increase in health care costs. For minimum cost health care insurance the risk has to be spread as widely as possible - ideally a single payer system. I think most of us believe that the purpose of our health care system should be primarily to provide good health care to everyone, not to generate maximum profits for a few. See what you missed?
January 13, 2006 3:54 PM | Reply | Permalink
You missed a lot. We want every American to have health care insurance, and that insurance to be designed to allow the insurance carrier to pressure the health care industry to reduce their advertising costs, reduce their obscene CEO pay packages, reduce their obscene profits, thus reducing the rapid increase in health care costs.
I think -- I hope, anyway, because no one should be that stupid in a fair universe -- that the person you replied to was trying to make a funny.
January 13, 2006 4:08 PM | Reply | Permalink
Currently the US healthcare system spends twice as much per capita as any other industrialized nation (US-$4800-5000 per capita, rest of world under $2500). For that the US comes in 25th or so in life expectancy, lower than Cuba and 30 or so other countries on infant mortality, less doctor visits, etc. and 40-45 million have no coverage and are billed ridiculously high charges because they have no insurance contract to lower costs.
The recent NYTimes report on diabetes said most insurance companies do not cover diabetes prevention expenses (foot doctor, sugar test strips, dietician visits) because most clients they cover will move to another job or insurance before the bad stuff happens (kidney dialysis, amputations, eye trouble, etc.) or they will die.
The US health care system is to a large extent a cash cow for insurance sector donations to politicians. Big Pharm has one full-time lobbyist for every member of Congress, Senate and House. There are probably very very few in Congress who really give a damn about the state of the US healthcare system- a shambles. Pray the is no flu pandemic.
January 13, 2006 4:46 PM | Reply | Permalink
I'd just like to add, that being a Canadian, my observation is that the Canadian health care system has 100% coverage of all people, we provide better services to more people, we have longer life expectancy, less infant mortality, and we do it all for proportionately about a third your cost. Our system is far from perfect, and we're always looking for ways to improve it. But when we compare it to your system, it really does seem perfect.
January 13, 2006 5:44 PM | Reply | Permalink
And our drugs are cheaper.
January 13, 2006 5:56 PM | Reply | Permalink
And we have enough vaccines, thanks. We're doing fine.
January 13, 2006 5:56 PM | Reply | Permalink
January 13, 2006 5:58 PM | Reply | Permalink
Wal-Mart appears to have found a way to force the state to subsidize its health care costs. Something that gives it an unfair advantage over its competitors.
It seems to me that the obvious immediate solution is for the state to stop subsidizing Wal-Mart's health care, and in fact, to stop subsidizing Wal-Mart in various ways.
Or it seems the state is obligated to subsidize Wal-Marts colleagues and competitors in an equivalent manner.
However, if you are doing that, then inevitably, you will create a jury rigged, haphazard system that is incredibly costly and ineffective as one 'patch' and 'adjustment' after another is added.
Your current health care model is the worst in the western world. So your result would be to take an incredibly complex, ineffective and cumbersome system, and incrementally magnifiy its costs, complexity and ineffectiveness.
Or you can just scrap the whole thing and simply have a real health care system.
January 13, 2006 6:03 PM | Reply | Permalink
Or you can just scrap the whole thing and simply have a real health care system.
I guess I don't see scrapping the whole thing. I see making it evolve into a system we can be proud of. For example: make Medicare apply to everyone - contract the paperwork to the insurance companies with competitive bidding and the country divided into sectors, with each sector's paperwork a separate contract. Then, to control the rampaging medical care cost increases, empower the administrator of the program to apply pressure to the health care providers, especially the drug suppliers. Then, over ride restrictions on nurse provided health care, to provide a cheaper option for head colds, sprained ankles, upset stomachs, etc. in small health care centers. Etc. Notice, that I didn't say the dreaded "s" word? Nor did I suggest that one couldn't keep his own choice of a personal doctor?
January 13, 2006 6:45 PM | Reply | Permalink
I really don't know why y'all are lauding this passage of a toothless law so much. Yeah, this law has it's heart in the right place. WalMart has none. This is why it is going to turn out to be a sham.
Do you want to know what is going the happen? The following is my experience from the engineering/construction world. About fifteen years ago the state of (UnNamed) raised the Workman's Comp for firms of a particular size with a workforce, not the actual trade workers, of a given size or percentage of total with duties on the construction site. Their solution was to fire all field related positions and rehire them in a wholey owned contract labor shop. If the projects within the State grew to large and started bumping up against the Worker Comp ceiling, another front company would be brought in. These "job shops" were incorporated in states with very lax Workers Comp rules and 'right to work rules".
Bottom line, they skirted the rate increase, reduced benefits, pensions, 401K's, travel expense, back charged the government for "having" to hire contract temps & gleened a percentage of hourly wages by paying less than client negotiated wage rates to their in-house "job shop".
. They made a fortune off the tightening of safety and health requirement and managed to lower the living standards of all non-management personel.
Don't look for WalMart to cave, but quietly go around the good intentions and make us all pay more towards their growing margins. Unionization or repeal of this quaint idea that corporations are people are the only real solutions I see. Or legislatures that care about people ...... LOL
January 13, 2006 7:01 PM | Reply | Permalink
For those who may have missed Mark Schmitt's earlier article . . .
January 13, 2006 7:01 PM | Reply | Permalink
Sometimes, something grows so cancerous, so impossibly screwed up, that there really is no choice but radical surgery.
You cannot improve the present system, you cannot make it more accessible, more fair, provide better quality or cheaper. You cannot achieve any one of those goals, much less all of them or any combination. Why, because the established interests which parasitize off your health care system will fight any improvement to the death. The only 'improvements' they will consent to are those which cater to their interests and their interests alone. Look at what happened to Medicaid.
If you are even going to think about rescuing it or reforming it, you are going to end up with a huge knock down fight on your hands. So what's the point. You're going to have that fight anyway, burn down the whole thing and put something sensible and effective in its place. Compromise will not save you from any fights, you'll still go through special interest hell, and at the end, you'll be back where you began in five years time. Better to just go all the way.
I don't give a rat's ass about the 's' word. The issue is what works, and what doesn't work. Human lives are at stake and that is the only issue that counts. What you've got simply does not work and people die for it.
January 13, 2006 8:24 PM | Reply | Permalink
Dollars are at stake. Not dollars for health care but dollars for political campaigns to buy TV spots to Swift Boat the traitorous Commie liberals who want the USA's dysfunctional healthcare system to be like the Canadians (they are part FRENCH, as in Boycott the French they told us Iraq would be a quagmire etc). For profit health insurance companies and those super expensive drugs help pay for the great educational system the US has called Mainstream Media and TV ads, and political advertising for a public that doesn't have a clue.
The main danger will be our vigilante border Minitemen who might choke off the flow of Mexican workers and the US will slowly sink into disrepair, or worse. The illegals can replace any sick or dead citizens at less cost.
Forget health care, turn on the idiot box and pass the Bud, burger and Freedom Fries.
January 13, 2006 10:44 PM | Reply | Permalink
Seriously, if Walmart added one or two cents to every item sold, it wouldn't lose any revenue, it wouln't need to "cut" wages, and it could provide a health care plan to it's workers. Walmart is resistant not because of cost factors, but because they don't want to provide any more than they absolutely have to in order to operate. Someday this attitude will come back to bite them in the butt.
January 14, 2006 12:44 AM | Reply | Permalink
I think -- I hope, anyway, because no one should be that stupid in a fair universe -- that the person you replied to was trying to make a funny.
I'm happy to see that the posters here are interested in having a real debate with people who disagree with them, not throwing around pointless invective!
Anyway, I was making a joke in an indirect way, but it hits at something important I think. Medicaid is supposed to be health coverage for people who can't afford it otherwise. Liberals agree with the point of this program. Now, Wal-Mart pays its workers their marginal product in both wages and employee compensation. Thus it doesn't offer great health care coverage because the marginal product of the workers is not that high (but Wal-Mart is no worse in this respect than other big box retailers). So where is the money supposed to come for the health care costs? Either from wages, other forms of employee compensation, or reduced profits from Wal-Mart. I'm sure many people here have no problem with that last option, however Wal-Mart's profits are actually not that great and it is unclear whether it can afford to pay much more than it does. The fact that other big box retailers offer about the same coverage makes me think it can't. For a good analysis of this point, see this paper.
In other words, the money is going to need to come from some third party, assuming that you don't want it to come from wages. Private charity will not be enough to cover everyone, so thus we have medicaid. That's the point of the program, no? Perhaps you disagree with the design of medicaid--you also think it should go along with nationalized health care. Yet I fail to see how this is Wal-Mart's fault or how it will be fixed by forcing Wal-Mart to pay more for health insurance. It could also be that you value health-care insurance more than wages.
January 14, 2006 1:27 AM | Reply | Permalink
It seems to me that if Wal-Mart's wages are so low, then we are artificially subsidizing Wal-Mart and workers prepared to accept low wages.
In such case, perhaps the simpler thing to do would be to not subsidize Wal-Mart's low wages, thus encouraging workers to leave and get better jobs.
And you still haven't explained why Wal-Mart should be given an unfair competitive advantage by having its workers subsidized when its competitors and colleagues are not.
Its easy to make a profit when you've got the government slipping you cash.
January 14, 2006 6:54 AM | Reply | Permalink
What gets me is that there is a simple solution to this issue: nationalized health care. Employers don't have to worry about paying this benefit and the overall costs can be contained. Why doesn't Wal-Mart et. al. get on this bandwagon?
January 14, 2006 7:26 AM | Reply | Permalink
Your argument sounds like rational economics, unfortunately it's not. In positing that increased benefits must come from somewhere, as obviously they must, you give us the options of coming from a) wages, which it can't since Wal*Mart's wages are already in most instances near the minimum, b) profits and corporate compensation, and heaven forbid that a corporation should reduce its profits or the salary and bonuses of its upper management, or c) some "third party." The third parties you give as choices are private charity or medicaid, funded by general tax revenue.
You just conveniently forget to mention the most obvious source, and that is slightly higher prices. So now that cheap piece of crap from China will no longer cost $2.63, but an astounding $2.66. So be it.
Why should a company be allowed to pay wages and benefits so low that its employees become public charges? We really have few choices. One, insist that companies like Wal*Mart pay workers enough to at least not require public assistance (hence things like minimum wage laws and this new law about health care) or two, subsidize their employees, and indirectly the company which refuses to pay a living wage and health benefits, through taxpayer dollars, or three, simply allow Wal*Mart workers to rely on charity and if that fails, die in the street if they get sick. At least we may still have functioning public trash pick up services to get rid of the bodies.
Well, number three is clearly unacceptable. If it is not to you, then you ought to be horsewhipped and forced to live in the nineteenth century. As for option number two it is patently unfair. Why should I, for instance, along with millions of others, be taxed to allow Wal*Mart, or any other for profit corporation to make larger profits or pay greater executive salaries? No reason on earth I can see. Or why should I, who does not shop at Wal*Mart, along with millions of others, be taxed to subsidize low prices for those who do? Isn't that socialism? Don't you hate socialism?
That leaves option number one. Any problems with that?
January 14, 2006 8:16 AM | Reply | Permalink
You just conveniently forget to mention the most obvious source, and that is slightly higher prices. So now that cheap piece of crap from China will no longer cost $2.63, but an astounding $2.66. So be it.
You're right, I didn't list this possibility. Another possibility I didn't list was reducing the work force.
But I didn't list the possibility of higher prices because I doubt Wal-Mart will raise its prices given that other retailers weren't saddled with the same requirements as Wal-Mart. But supposing it does happen, I have no idea how high the prices will need to rise in order to compensate and you don't either. While it may be a small increases on individual items, it could add up to something significant. We'll have to see.
Also, I have a different reaction to the possibility of higher prices: it will be a loss to the consumer. And who shops at Wal-Mart? Poor and moderate income people mainly. The average Wal-Mart customer earned $35,000 a year, while the average customer of Target and Costco earns $50,000 and $74,000 respectively. If the calculations of Jason Furman of New York University are to believed, Wal-Mart's lower prices allow its customers to save more than a hundred billion dollars every year. Higher prices may erase some of those gains. This needs to be balanced against offering more expensive health-care plans to its employees.
Den Valdron says: And you still haven't explained why Wal-Mart should be given an unfair competitive advantage by having its workers subsidized when its competitors and colleagues are not.
This isn't true. 5 percent of Wal-Mart's workers are on Medicaid. This compares to the national average for all firms at 4 percent. Wal-Mart is unexceptional in this regard.
January 14, 2006 8:49 AM | Reply | Permalink
But my view is that the cuts will probably come in the form of wage cuts or job cuts. I think Bryan Caplan basically has it right here.
January 14, 2006 9:02 AM | Reply | Permalink
ddrich -- every law on tax or regulation is the beginning of a process. The target takes steps to evade, the Gov if serious responds. This law is no exception.
hidalgoj -- thanks for the qualification. A question is how feasible it is for the company to locate such a facility out of state, given that it must service in-state stores. Your 'marginal product' discussion is faithful to Econ 101 textbooks, hence problematic. In the textbooks, labor markets are competitive and capital perfectly mobile, to cite two improbable assumptions. In this context, something like an increase in the minimum wage MUST reduce employment, whereas in actual empirical research, it turns out this ain't necessarily so.
denvaldron -- I agree that company-based insurance is not the way to go. Lacking the political power to get to single-payer at the moment, you take what you can get. The Wal-mart thing is as much a political measure as one in policy, as Ezra pointed out in the post I linked.
January 14, 2006 9:27 AM | Reply | Permalink
>Den Valdron says: And you still haven't explained why Wal-Mart should be given an unfair competitive advantage by having its workers subsidized when its competitors and colleagues are not.
>This isn't true. 5 percent of Wal-Mart's workers are on Medicaid. This compares to the national average for all firms at 4 percent. Wal-Mart is unexceptional in this regard.
What's that old saw about statistics? Something about figures don't lie, but liars use figures. You've engaged us with a logical fallacy.
Wal-Mart is a subset of the national average. That means that Wal-Mart's figures are incorporated into the national average. See where I'm going?
Wal-Mart represents a disproportionate share of the United States retail market. So it is artificially pulling the figure up to 4%.
Subtract out Wal-Mart and its weighting effect from the national average, and that average drops to what? 3%, 2.5%, less?
In which case, Wal-Mart is expressing a small but extremely important competitive advantage directly subsidized by the US taxpayer.
>You're right, I didn't list this possibility. Another possibility I didn't list was reducing the work force.
I don't think that its possible for Wal-Mart to viably reduce its work force in any significant degree. Labour studies on Wal-Mart show that it significantly understaffs and benefits from contributed unpaid work from its overburdened employees.
As for raising prices. There is no law of economics which says that Wal-Mart is required to have a specific profit margin or specific price ranges. Its just costs and expense.
As for 'loss' to the consumer. Well, if that money goes back into the community in the form of better wages, the aggregate position of the community and consumers improves, doesn't it.
Nice try though.
January 14, 2006 9:30 AM | Reply | Permalink
FOREIGNID: 83324
FOREIGNPARENTID: 0
FOREIGNCOMMENTERID: 9093
AUTHOR: CBR
DATE: 01/14/2006 10:07:30 AM
January 14, 2006 10:07 AM | Reply | Permalink
FOREIGNID: 83325
FOREIGNPARENTID: 83324
FOREIGNCOMMENTERID: 9093
AUTHOR: CBR
DATE: 01/14/2006 10:08:28 AM
January 14, 2006 10:08 AM | Reply | Permalink
Maybe we could stop the corrupt abuse of the patent laws? Abolish pharmaceutical advertising? Send people to prison who falsify study results, and expropriate their companies? Maybe that kind of stuff would "evolve" things a little quicker.
January 14, 2006 11:51 AM | Reply | Permalink
Precisely because it would give up the competitive advantage of its present situation.
January 14, 2006 12:11 PM | Reply | Permalink
I'll buy it when you present some real evidence, not your speculations.
January 14, 2006 2:13 PM | Reply | Permalink
Wal-Mart's total revenue: 219 billion. That's roughly 2 percent of GDP. I doubt it significantly affects the statistics on what the average firm does.
January 14, 2006 2:28 PM | Reply | Permalink
msawicky, neither of knows what will happen for sure. It depends largely on how big the concessions Wal-Mart will have to make. Since the corporation does not disclose how much it spends on health care, we will both have to wait and see, as I stated in my original post.
January 14, 2006 2:31 PM | Reply | Permalink
This is a tax on the majority population of consumers that has been the norm since the Bush tax cuts have been in place. The states have been forced to make up for federal shorfalls. This has manifested itself in every way imaginable. Bush and Republican Congress have taken our money and given it to their supporters via sweetheart tax deals for the wealthy and businesses and shifted the overalll tax burden to the working class and at the same time hammered organized labor for concessions. This is merely a facet of shifting the tax burden from one population segment to another, continuing the trend of the rich getting richer. The ownership society is by far the biggest lie of the Bush administration. Nothing could be further from the truth. Another thing sure to come a decade or so from now will be an unprecedented decay in our public infrastructure that makes our current problems pale by comparison. I can't think of a single positive thing we are doing at present that will provide for the U.S. to be competitive in the coming years. We are witnessing a string of major fuck ups that will be recorded as the most instrumental contributors to U.S. political and economic decline. The joke is that cutting taxes hasn't made government (collectively speaking) any smaller or more efficient. Nobody in their right mind would ever entertain paying for this. So why are we?
thepeoplechoose
January 15, 2006 2:14 AM | Reply | Permalink