Maryland vs. Walmart: TANSTAAFL
The Maryland state legislature recently passed legislation requiring all businesses with 10,000 or more employees to spend at least 8% of their payroll on health care. Ostensibly, the state's goal is to reduce its Medicaid burden by requiring large employers, such as Walmart, to shoulder more of the burden. Now, assuming that Walmart does not have an endless pool of money in which to dole out more health care on its employees and continue its other operations at their current funding levels, what sort of tradeoffs is Walmart likely to make? Let me make one prediction: Walmart will reduce the wages it pays its workers in order to offset the impact of the higher health care benefits. It's not clear to me if Walmart's workers will be better off in the end. What other tradeoffs do you think Walmart (and the other large employers) will make?
9 comments:
Now, I don't know much about economics (yet), so I'm probably wrong, but this is what I'm thinking. Does anyone else notice the million wats of lights EVERY Wal-mart has going on 24 hours a day? To me, that just screams waste. I wonder how much Wal-mart would save if they closed down for even 3 hours a day. Probably a lot, which could go towards that 8% instead of firing their employees.
I'm sorry, I meant cuting their pay, but Wal-mart would think to firing some poeple.
Even though you accidently said that Wal-mart will fire their employees to make up for the extra money that is being spent, I actually agree with that statement. I don't think Wal-mart would think twice about firing employees in order to make up for the 8%. If you think about it, if they fired a certain percentage of workers, that would mean that they would not have any complaints or protests about cutting back wages from every worker in the nation, which would almost certainly happen if wages were cut back.
As a paragraph i found from Wal-Mart's website, (http://www.walmartfacts.com/newsdesk/wal-mart-fact-sheets.aspx#a127): "Wal-Mart provides insurance to more than 1 million people and offers up to 18 different plans. Coverage is available for as little as $11 per month for individuals and 30 cents per day for children - no matter how many children an associate has."
So, according to their words, they spend $121 on health care for one person. From another web (http://www.dfnyc.org/cms/), i found that the average wage of a common sales associate is $14,787. That means, the ratio of fee of health care out of income is 8.92%, which number has already nearly 1 percent higher than the order of government. So i don't think this new legislation won't bring Wal-Mart too many bad effects.
But to other corporations whose employees are larger than 10,000, this new rule will not be bad news either. In order to reach this number, they may firstly think about cutting the wages. Indeed, the new legislation just moves part of the employees' income to their health care. But to the employees who need money to live in this expensive world, more money on health care and less income cannot help them be betteroff but only worse.
I think that all of those thoughts are very accurate. Wal-Mart will definitely not cut into any of its own cost benefits to come up with the extra 8%. Wal-mart is known for their poor treatment to their employees and that is not going to change. They supply the minimum.
I think Walmart will cut the number of employees in a store as low as they can. This will probably require a lot more responsibility for the workers. I can also see them with holding any bonuses or raises for the year to make up for any lost cost.
Rather than actually cutting wages, I think it's also possible that Wal-Mart might attempt to shift the burden onto its employees, pulling the money needed to support this new legislation right from the very people that it's trying to help. There a quite a few companies that do this very thing, though not always for health insurance. However, even if Wal-Mart were to go this route, it would probably have the same effect as cutting wages. At any rate, I think that they are going to try and find some kind of loophole to get out of shelling out more money than they really want to.
And as for the 24-hour Wal-Marts, those stores probably make a lot of money at 4 in the morning, especially if the store happens to be close to a college campus. There are people who only have time to shop at awkward hours of the night, like 3-4 in the morning, and Wal-Mart can make a lot of business by being the only store open to cater to those people.
According to the information about the Walmart, it is a employer with over 10,000 employee. So Walmart has to provide each its employee a health care benefit that can not be smaller than 8% of the employee wages.
Since Walmart does not have endless money to support the health benefit provided to the employees, and also keeps its bottom line. One of the options (trade off) that Walmart has is to reduce the employee wages to fund health care cost needs. In the end, the employees are the ones that have to bear the burden of the increasing cost, which is the Maryland state trying to stop by passing the 8% limitation.
Second option - If Walmart does not reduce employees' wages and salaries, then the increasing health cost will reduce Walmart's profitability and effect its stock price. The shareholders have to suffer. Also, Then in order to keep up with the Wall Street expectation, Walmart has to cut its workforce. So employees are going to suffer the conseques because they might lose their job. Therefore, I think the regulation from Maryland is not a good way to help employee.
If they are unable to decrease wages (because they are already at minimum wage), decrease overhead (i.e. utilities), or find alternate cost cutting methods. Could it be possible that the large employer might pass on this expense to it's customers in the form of higher markups on retail items. The employer may have to make a sacrifice (tradeoff). They could give their employees health benefits with the tradeoff that they must raise retail markups which will make their customers unhappy.
I have heard that Wal-Mart pays the majority of their employees at or near minimum wage. Thus cutting wages nearly impossible. I feel that Wal-Mart would have two options to save money. First would be to raise their remarkably low prices though this would upset their customers. The second would be to cut jobs. Many large companies, for example GM, cut jobs to increase their revenue. These would be the two best ways to raise the money needed for health benefits.
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