“Don’t count on big business to support the free market“. (In Brief, 7/1/2009, Foundation for Economic Education, Editor’s comment.) That’s one observation about Wal-Mart’s announcement of support for the Obama-inspired plan to force employers to provide health insurance coverage for employees. There have been others, such as allegations of “Chicago-style backroom deals with unions” relative to the “card check” program where it is suggested that the magnanimous gesture by Wal-Mart might have bought off the unions on the long standing efforts to get the giant retailer unionized. That Wal-Mart does supply health coverage to employees after a certain period of employment now seems to diminish that theory however. All over the country business executives are gaping in disbelief at this otherwise savvy company’s strange “corporatist style” move. Some say that its smaller competitors will be hamstrung by employer-mandated health care and that gives the giant an even bigger advantage going forward.
Well duh, let’s just overlook the public relations and political aspect for a minute and also forget about the speculation above. If employers are forced by government to provide the health insurance benefit, who pays for it? It is not Wal-Mart nor any other employer forced to provide the benefit. The current employees, those to be laid off and all future employees will pay. It can’t be anything else. Think about it. Wal-Mart’s business model—just like that of any other business—operates in such a way that total payroll accounts for a certain, relatively stable percentage of operating expenses. If you add a significant cost like providing the health insurance benefit for all employees, this percentage cannot go up without affecting profits. The business needs to continue serving its shareholders, so that option is not attractive. Selling prices can be raised, possibly, but that works against the low-price strategy of Wal-Mart specifically, and presents a problem for competitors by the same token. So, what else? In order to keep total payroll in its usual relationship to other operating expenses, employees must either accept lower wages for the same level of productivity or some of them must be fired to bring the total down. Prospects for the thousands, who currently apply to Wal-Mart whenever there are openings, will look even bleaker for finding a coveted job with this great employer. In addition, any employees who would rather have higher wages and find their own insurance, if they wanted it, will now be compelled to accept unwanted coverage.
Finally, Wal-Mart no doubt recognizes that providing insurance is cheaper than paying the Social Security taxes on higher wages. And, being a forward-looking company, Wal-Mart can see that socialized medicine is in the cards with the Obama plan and it will be no worse off when that happens.
©Copyright 2009 Edward Podritske