The Iron Law of Benefits

One of the stock criticisms of Wal-Mart is that Medicaid subsidizes it by allowing it to avoid providing health insurance to all of its employees. The usual libertarian response is that this is Medicaid's problem, not Wal-Mart's. That's a perfectly valid response, as far as it goes, but it occurred to me tonight after commenting on Harry Brighouse's review of Charles Murray's In Our Hands that the biggest problem with this criticism is that it simply isn't true.

I don't see any reason to suppose that cost of living is a factor in determining wages. The price of labor is determined just like any other good: Workers try to sell it for as much as they can get, and employers try to buy it for as little as they can. Getting free health care from the state doesn't make workers any less eager to get the best wages they can, and it doesn't make Wal-Mart any more eager to pay low wages or reduce the competition it faces from other employers. Employers provide health care benefits not just because their employees need it and can't get it from the government---they do it because they see it as a cost-effective way to convince people to work for them.

I do think that Medicaid affects Wal-Mart's compensation packages, but not in the way its critics suggest. Without Medicaid, a health care benefit takes employees from zero to whatever level of coverage is provided. With Medicaid, a health care benefit takes employees from Medicaid to whatever level of coverage is provided. But since providing a health care benefit costs the same either way, Medicaid reduces its cost-effectiveness. With this incentive structure, it doesn't make sense to provide a health care benefit to employees who qualify for Medicaid.

But Wal-Mart can't just cut health care benefits without making up for it somehow---they still face competition from other employers---so they have to do something else to make working for them more attractive, such as increasing wages or adding other benefits. Ultimately, it's the direct recipients, and not Wal-Mart, who benefit from Medicaid.

Of course, all of this assumes that Wal-Mart faces a competitive labor market. But if it doesn't, then there's no reason to believe that it would offer a health care benefit to its employees even if they didn't have Medicaid.

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I thought one of the

I thought one of the arguments for the public financing of health care was that it would make American businesses more competitive. Wal-Mart does exactly that for exactly those reasons and gets no end of grief.

At least two conclusions fall out of this.

1. Medicaid is a bad idea because it allows corporations like Wal-Mart to off-load their cost of labor onto the public dime. Abolish Medicaid.

2. Expanding the public financing of health care is a bad idea because it will lead to businesses like Wal-Mart off-loading their cost of labor onto the public dime. Avoid the "Wal-Martization" of health care. Oppose "universal access".

The real beef against Wal-Mart is that it is a big example of corporate capitalism. That you get to sneer at the working class in the process while loudly pretending to be a champion of all that is Right and Good is only one of many the additional benefits.

I think there is an income

I think there is an income effect of getting free health care from the state: it does make workers less eager to get the best wages they can, and it might make Wal-Mart more eager to pay low wages or reduce the competition it faces from other employers. Getting free health care from the state probably reduces national income and also therefore makes Wal-Mart more eager to pay low wages.

Matti, You have anything

Matti,

You have anything for that more than pure assertion? I think Brandon answered those assertions clearly in the post.

Brad: I agree. As I said,

Brad:
I agree. As I said, the effect is probably so small as to be negligible.

I'm not sure, but I think

I'm not sure, but I think Matti's making a different argument that I didn't address: Tax-funded health care makes the recipients wealthier and the rest of us poorer. Since the recipients are wealthier, the marginal value they assign to additional income declines, and they're less willing to make the effort to look for a better-paying job. On the employers' side, there's less money coming into the retail sector (because it's being spent on more health care), so some retailers go out of business, and those remaining can (and must) pay lower wages.

...I guess. Maybe I'm reading too much into it. In any case, it seems like such an effect would be so small as to be practically insignificant.

Brandon, I'd say that for

Brandon,

I'd say that for the people making the sort of wages they make at Wal-Mart, their marginal utility of each dollar is already very high, so even the addition of health benefits from the state won't cut into that very much.

I suppose if the workers

I suppose if the workers actually got sick and died, or lost days of work without Medicaid, then Wal-Mart *would* be obliged to pay this basic maintenence cost in order to keep running?