Wal-Mart bill would hurt low-skill, entry level workers

Original Article:

  • Author: Craig Garthwaite

  • Publication Date: April 2005

  • Newspaper: Cumberland Times-News

  • Topics: Health Care

Frustrated by their inability to win key organizing battles, labor unions have turned their attention from the workplace to statehouses across the country. Their most recent target is the state of Maryland, where organized labor is pushing legislation mandating employer-paid health benefits they have been unable win at the negotiating table.

The recently debated Maryland Fair Share Act (SB 790/HB 1284) would require employers with more than 10,000 employees to spend at least 8 percent of their payroll on healthcare. Only two companies in the state have more than 10,000 employees—Giant Foods and Wal-Mart—and only Wal-Mart spends less than 8 percent of their payroll on health coverage. Unsurprisingly, Giant Foods—whose high-cost, unionized workforce is making it difficult to compete with Wal-Mart in the state—is a primary supporter of the legislation.

If enacted, however, all evidence points to the “10,000 employee” limit being swiftly lowered to cover smaller businesses. Delegates are already discussing introducing a 4.5 percent healthcare tax on employers with fewer than 10,000 employees. Clearly, Fair Share is simply the opening salvo of a large battle to mandate employer-paid health coverage—and all economic evidence points toward low-skill jobs being the largest casualty.

The problem of the uninsured and rising healthcare costs requires action. It is essential, however, that lawmakers resist the temptation of simplistic “solutions” with unintended consequences that will make life harder for the low-skill employees they are attempting to help. Even worse are solutions such as Fair Share, which create significant harm without meaningfully addressing the underlying problem.

By exempting small employers—the primary employers of the working uninsured—these mandates create little benefit. In California, the proposed employer mandate (defeated by voters last November) would have only affected 35 percent of the uninsured. Washington State’s proposed mandates only affect 18 percent of their uninsured population. SB 790 in its current form, covering only employers with more than 10,000 employees, will have a similarly limited effect. But evidence from other states show that even a lower employment limit of 200, 50, or even 25 employees would still not significantly decrease costs or broaden coverage in Maryland.

Focusing on the number of employees, rather than the underlying economics of affected businesses, is bad policy for reasons beyond inefficiency. Exempt from this legislation are employers with high profit margins and small labor forces—such as law firms and accounting offices—who would have the greatest ability to adjust to the increased per-employee costs. Employers in labor-intensive industries with low profit margins, however, bear the brunt of this legislation despite having the least ability to adjust to dramatic increases in labor costs. This can only lead to significant unintended consequences. Imagine the cost of growing from 199 to 200 employees if that were the threshold for coverage!

Many supporters of this legislation claim affected businesses cannot decrease the size of their labor force or move jobs out of the state because they are mainly community-based retail and food services establishments. Increased labor costs, however, drive companies away from low-skill employees and towards automation. In the supermarket industry some companies have responded to higher costs with self-checkout lanes in their stores instead of human cashiers. These cashier positions, which were once the gateway for low-skill employees to the workforce, serve as a prime example of the ability of businesses to increase efficiency and decrease costs by introducing more customer self-service.

For an example of how low-skill retail positions can and will leave Maryland, one need look no further than McDonald’s recent efforts to staff their drive thrus in high labor cost states with employees in low labor cost states via phone. As Senator George McGovern stated, “when these [entry-level] jobs disappear, where will young people and those with minimal skills get a start in learning the ‘invisible curriculum’ we all learn on the job?”

Who will be most hurt by these changes? Analyses of similar proposals in Washington and California found that those who will lose are less likely to be married and more likely to be female, poorer, less educated and from a minority group. Specifically, in Washington State, job losers will be nearly 50 percent more likely to be a high school dropout and 33 percent more likely to be non-white—the very groups supporters of the mandate claim they are trying to help.

What lawmakers should be doing is truly attempting to attack the underlying problem crippling voluntary employer-provided healthcare—the excessive rising costs of health coverage—instead of simply carrying organized labor’s water on this issue.