2005 October 26 Wednesday
Wal-Mart Wants Healthier And Cheaper Workers

The New York Times got hold of an internal Wal-Mart memo on benefits costs written by Wal-Mart executive vice president for benefits M. Susan Chambers. Read their new article on the memo. Also, after telling Wal-Mart they have the memo Wal-Mart furnished the Times with the final memo version that went to the Wal-Mart board of directors: (PDF format)

Growth in benefits costs is unacceptable (15 percent per year) and driven by fundamental and persistent root causes (e.g., aging workforce, increasing average tenure). Unabated, benefits costs could consume an incremental 12 percent of our total profits in 2011, equal to $30 billion to $35 billion in market capitalization.

Wal-Mart's benefits costs are growing faster than their sales. Wal-Mart believes its least productive workers are most likely to stay in their jobs.

While Associates are satisfied overall with their benefits, they are opposed to most traditional cost-control levers (e.g., higher deductibles for health insurance). Satisfaction also varies significantly by benefit and by segment of Associates. Most troubling, the least healthy, least productive Associates are more satisfied with their benefits than other segments and are interested in longer careers with Wal-Mart.

I wonder how they measure "least productive".

They want to change jobs in order to attract healthier workers. One way to do that would be to inject physically demanding tasks into more jobs so that less healthy workers decide to leave or to not apply in the first place. See further below for that proposal.

Redesign benefits and other aspects of the Associate experience, such as job design, to attract a healthier, more productive workforce.

Of course a younger workforce is a healthier and therefore cheaper and more productive workforce. But the Wal-Mart worker population is aging more rapidly than the American population:

Our workforce is aging faster (0.50 years per calendar year) than the national average (0.12 years per calendar year).

Our workers are getting sicker than the national population, particularly with obesity-related diseases. For example, the prevalence of coronary artery disease in Wal-Mart’s population grew by 6 percent compared to a national average of 1 percent, and the prevalence of diabetes in our population grew by 10 percent compared to a national average of 3 percent. (That said, our workforce is no sicker at present in absolute terms than the national population.)

Wal-Mart does not believe its workers become more productive with time. Makes sense. The tasks to perform in a retail store are fairly simple and rapidly mastered. Yet Wal-Mart pays their longer term employees more and those employees also cost more in benefits. For example, the longer term employees are older and hence use more medical benefits. Also, those more likely to be unhealthy are less likely to leave Wal-Mart.

Moreover, because we pay an Associate more in salary and benefits as his or her tenure increases, we are pricing that Associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart.

Oh heavens! They pay their longer term workers more and therefore those workers can't make as much by switching jobs. Therefore those workers stay with Wal-Mart and drive up benefits costs! The audacity of these workers, responding to economic incentives created by their employer.

Wal-Mart is feeling the heat from the increased costs state governments are shouldering for Medicaid.

Moreover, federal and state governments are increasingly concerned about healthcare costs, and many view Wal-Mart as part of the problem (a view due, in part, to the work of Wal-Mart’s critics). Medicaid costs are a major priority on most governors’ agendas; already a quarter of states are spending more than 25 percent of their budgets on Medicaid, and observers across the political spectrum assert that the current system – with spiraling costs, a large population of uninsured, and an increasing number of medical bankruptcies – is unsustainable (although there is little consensus on what should take its place). In this environment, we can expect efforts like those in Maryland (which is trying to mandate that companies spend a certain percentage of revenue on healthcare) and New Hampshire (which requires health services to track where Medicaid enrollees are employed) to accelerate.

A large percentage of children of Wal-Mart employees are on Medicaid or are medically uninsured.

We also have a significant number of Associates and their children who receive health insurance through public-assistance programs. Five percent of our Associates are on Medicaid compared to an average for national employers of 4 percent. Twenty-seven percent of Associates’ children are on such programs, compared to a national average of 22 percent (Exhibit 5). In total, 46 percent of Associates’ children are either on Medicaid or are uninsured.

The children who are uninsured end up showing up in emergency wards seeking care. We pay. In the United States cheap labor is subsidized labor. Low paid Wal-Mart employees aren't making enough to pay the taxes that fund schooling or medical care of their kids.

Wal-Mart wants to drive off unhealthy workers by injecting more outside manual labor requirements into all job descriptions.

Design all jobs to include some physical activity (e.g., all cashiers do some cart gathering);

Offer savings via the Discount Card on healthy foods (e.g., fruits and vegetables);

Offer benefits that appeal to healthy Associates (e.g., an education offering targeted at students).

Reductions in retirement benefits combined with increases in educational benefits would tend to pull in more younger workers and fewer older and less healthy and more expensive workers.

I wonder what Wal-Mart's position is on Bush's half-baked foreign worker permit proposal. Such a proposal should hold considerable appeal for American corporations because the workers would all be temporary. After several years of gradually rising costs from employing such workers a company like Wal-Mart could say "Oh sorry, we'd love to keep you but your temporary worker permit has expired and you have to go back to Mexico or El Salvador". A huge workforce of workers who have to leave after a fixed amount of time would allow US corporations to avoid higher costs associated with longer term workers. Though as I point out at that previous link, such a program would work much different in practice than it is proposed to work in theory.

Imagine the United States government functioning as a corporation setting immigration policy with the same cut-throat view toward the bottom line that Wal-Mart uses to modify benefits packages and drive off and attract employees. Also imagine that all state and local governments effectively were subsidiaries so that their costs and revenues showed up on a consolidated financial statement for the federal government. US immigration policy would get reformed over night with the goal of driving off the low revenue (i.e. low income earning potential) and high cost (tendency to commit crimes, have illegitmate children, etc) immigrants while at the same time attracting the highly profitable (likely to earn high incomes and generate low costs) immigrants.

Share |      By Randall Parker at 2005 October 26 01:45 PM  Immigration Economics


Comments
daveg said at October 26, 2005 3:46 PM:

Providing health care via corporations is a stupid idea and activities such as these are the result.

Stephen said at October 26, 2005 6:05 PM:

Employment economics are causing Walmart to encourage healthy behaviour among staff - ie discounts on healthy food. I'm having trouble seeing anything evil about this - its just what companies do to maximise profit. I think Randall is turning to socialism!!!

The greatest evil I see here is calling employees 'Associates' - I hate that corporate speak. Its right up there with 'have a nice day' and the plastic smile.

Randall Parker said at October 26, 2005 6:37 PM:

Stephen,

Wal-Mart wants to do two very different things to control costs:

1) Encourage its employees to pursue more healthy practices.

2) Influence who works there and leaves there as a way to achieve a healthier workforce.

Socialism? No, I'm trying to prevent Robin Hood tax regimes by promoting policies that will reduce the growth in the ranks of the poor.

Stephen said at October 26, 2005 9:54 PM:

Division of Labour blog (scroll down a'ways) has some comments about Walmart's recent call for an increase in the minimum wage.

Ivan Kirigin said at October 27, 2005 8:42 AM:

It will be interesting to see what happens when Wal-Mart, God's gift to the unskilled, begins to automate. There is little reason for check-out clerks when RFIDs are in every item. There is little need for human restocking when a single robot is more efficient, more away through centralized stocking software, and can work 24hrs a day.

Both of these will happen within 5 years.

You will still have humans in customer service, because humans like other humans. For now, you will still have human security, with aid from semi-automated surveillance. You will also have managers and such, but they will also be aided with software that is the product of years of operations and management research.

Because of Wal-Mart's constant drive for greater efficiency, these changes will happen with them first. Unfortunately, such huge increases in productivity might be seen in a negative light, as Wal-Mart is already demonized. Either way, Wal-Mart will continue to do well. The irony is that over-zealous politicians attempting to force Wal-Mart into less efficient practices might actually speed-up the adoption of greater automation.

daveg said at October 27, 2005 9:22 AM:

I am a hard core free market guy. But I have found myself taking positions lately that seem socialist on the surface, much as Randall has done here.

The difference is that half-baked capitalism (or half baked socialism) is far worse than either complete socialism or complete free market. So, if you are in the situation where we provide all sorts of low income, elderly, and other types of government mandated health care, including inability to deny emergency room care, the system is worse that if you just had everyone pay out of pocket or you had complete state run health care.

I personally would prefer that everyone pay for health care out of pocket. But, if you are going to have all sorts of partial government programs and mandates, you might as well take it all the way. Otherwise you have huge market distortions and free riders as you do today.

Another example of this was the california energy "dereguation." This was given the name "free market," but was anything but that. It created huge costs that were far worse than the orignial highly regulated system.


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