Is Wal-Mart a Welfare State?

The Washington Post’s George Will calls it “Something not easily distinguished from theft”. Maryland legislators passed a law this month which requires employers with 10,000 or more workers to spend at least 8% of payroll on employee health benefits. How many employers are affected by the new law? Only one — Wal-Mart.

Will says that:

Maryland’s grasping for Wal-Mart’s revenue opens a new chapter in the degeneracy of state governments that are eager to spend more money than they have the nerve to collect straightforwardly in taxes.

The left hates Wal-Mart, he says , because it holds down prices for consumers "by not being a welfare state" for its employees. At the same time Will notes that 86% of Wal-Mart’s employees have health insurance and that the company offers "18 plans, one with $11 monthly premiums and another with $3 co-payments."

America’s union movement has a different perspective. The ALF-CIO argues that "Wal-Mart makes taxpayers pick up the health care tab for its employees. While 66 percent of workers at large U.S. firms get health coverage on the job, fewer than half of Wal-Mart workers do".

The union movement’s allies in Congress and academia agree. A report by the minority staff of the U.S. House of Representatives Education and the Workforce Committee says that "Effectively, Wal-Mart forces taxpayers to subsidize what should be a company-funded health plan" (pdf). A 2004 study by UC Berkeley ‘s Arindrajit Dube and Ken Jacobs concluded that:

In effect, Wal-Mart is shifting part of its labor costs onto the public. We estimate the cost of the subsidy to Wal-Mart in California for state taxpayers to be $86 million a year. Other retail firms that carry their own weight by providing self-sufficiency wages and employer-sponsored health insurance are placed at a competitive disadvantage, which can result in a downward cycle for wages and benefits across the industry (pdf).

The AFL-CIO has launched the Fair Share Health Care campaign in 33 states to force large corporations like Wal-Mart to shoulder more of the burden of providing health coverage for their employees. According the their web site:

While Fair Share Health Care legislation will differ slightly in each state, in general the legislation will require large corporations to spend a certain percentage of their payroll to provide health care benefits for their employees or pay into a state Fair Share Health Care Fund. The percent of payroll employers would be either set by the state legislature or set based on the average percentage paid by large employers in the state.

America’s health care problems are a result of its peculiar history. While other countries like Britain, Canada and Australia have universal health coverage underpinned by government, America has relies far more heavily on health benefits provided by employers. As the Manhattan Institute’s David Gratzer explains:

Most Americans receive their health insurance from their employer. Few pause, however, to contemplate why. As part of the war effort, the FDR administration imposed wage and price controls. Employers, seeking a way to provide workers with competitive salaries without violating the law, began offering health benefits. On October 26, 1943, the IRS legitimized the practice, ruling that health benefits would remain tax free.

In recent years some US corporations have argued that they can’t afford to keep providing workers and their families with the same level of health benefits as they have in the past. Car giant General Motors claims that health care accounts for $1,500 of the cost of each vehicle they make. NPR’s Uri Berliner says that "GM is the largest private purchaser of health insurance in the country, footing the bill for 1.1 million workers, retirees and family members. Most are retirees, the very people with the highest health care expenses."

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Cameron Riley
18 years ago

IIRC the employer paying for health insurance was first started on the Norfolk, Virginia dockyards by a company that built Liberty ships. They needed able bodied men, and due to the military, there was a large labor shortage. The companies competed for skilled and able bodied labor with health benefits.

I personally don’t think employers should be paying for health benefits. It is a barrier to entrepreneurial growth. It does not help that in recent times the cost of health to an employer has been growing in the double digits each year.

The individual, or government should be carrying that burden.

Another thing to note, is that the US spends massive amounts of public money on health anyway. In 2003 public funding comprised 46% of all health care costs – $772B.

I recall seeing a budget amount of approx 600B for health care for the US federal, but cannot find that figure again. Either way is a tonne of money being spent.

Paul Watson
18 years ago

The financial problems at GM (and many other large US co’s) are much more to do with funding ex-employee’s retirements, than with current employee’s health. As I understand it, the Wal-Mart thing is solely to do with the latter. I suggest that the two are quite different issues

18 years ago

Seeing a union advocating so hard against the notion of government responsibility for universal standards of health is a little unseating, and a reminder that unions are generally more wedded to the immediate interests of their members than any bigger lefty ideals.

Foreign branches of the likes of GM and Ford are sending all their profits back to the US to pay for that country’s failure to provide an adequate health system. It’s a disgrace.