Bashing Wal-Mart
No One Gains

While special-interest legislation is nothing new in the Maryland state legislature, labor unions and their Democratic allies took the practice to the next level recently in overriding Gov. Robert Ehrlich's veto of the "Fair Share Health Care Act." The new state law will essentially force companies that employ more than 10,000 people to spend at least 8 percent of their total annual payroll on health care.

The measure's supporters claimed that it would increase health care coverage in the state, but the catch is that only one company meets the highly specific criteria: Wal-Mart. The real motive behind the legislation wasn't to solve serious health care problems, but rather allow unionized competitors of Wal-Mart like the United Food and Commercial Workers to punish their non-unionized rival, Wal-Mart. Emboldened by this possible success, plans are afoot to introduce similar legislation in 30 other states.

Attempts to stifle retail innovators through legislation are not new. In 1929 and 1930 alone, for example, owners of small independent shops induced legislators across the nation to propose more than 140 bills designed to slow down the growth of efficient chain grocery and dry good stores. Fortunately, that effort largely failed, as should this one.

Aside from the basic unfairness and potential distortion of resources (and possible unconstitutionality) of leveling legislation against a single company, the passage of this law was bad for Maryland, Wal-Mart employees and especially for lower income citizens. Above all, it was unnecessary.

While it is true that less than 50 percent of Wal-Mart employees have company-provided health insurance, the vast majority of the remainder has some form of insurance, such as coverage under a spouse's insurance plan or through Medicare. The specter of Wal-Mart employees dying or being substantially hurt health-wise because of a lack of insurance is sheer fiction.

To be sure, some Wal-Mart employees receive Medicaid, a taxpayer-funded program. But the percent of Wal-Mart workers receiving Medicaid is in line with the retail trade industry generally.

The real story behind the bill is to punish one highly efficient, non-unionized company while leaving its competitors alone. Why should Wal-Mart workers essentially have mandatory health insurance but not Target or Best Buy workers? Why not set the bar at 500 or 1,000 employees? The fact is that the law was written in a way only to impact Wal-Mart. Wal-Mart is big and visible precisely because it is terribly efficient.

New Labor Department data show that from 1987 to 2004, labor productivity rose an astonishing 7.6 percent a year in the part of retail trade in which Wal-Mart operates, well over double the increase in the economy as a whole. One of the leaders of the anti-Wal-Mart legislation, the UFCW union, represents workers primarily in a sector of retail trade, grocery stores, which had only a miniscule (0.2 percent) annual productivity advance. Thus this effort might be viewed as an attempt by persons in a stagnant and declining sector of retailing to thwart their more efficient and successful competition.

Wal-Mart has no trouble finding good employees who are reasonably happy with the firm (they have consistently rejected unionization) at existing levels of compensation. The Maryland law forces Wal-Mart to pay its workers more than necessary, or more than competitors.

Alternatively, it might compel them to actually cut wages to maintain constant total labor costs. Wal-Mart provides tens of billions of dollars of consumer welfare annually to customers by offering prices lower than would exist in a world without Wal-Mart. One key to those low prices is controlling labor costs. Anything that unfairly raises costs to Wal-Mart will lead Wal-Mart to raise its prices--hurting millions of consumers.

Finally, Wal-Mart is now far less likely to expand in the Maryland market with this disastrous legislation, a development which will hurt Wal-Mart's biggest customers: lower income groups and minorities. For example, a recent Pew Research Center poll showed that a majority of respondents with incomes under $30,000 a year had shopped at Wal-Mart "regularly" in the last year, compared with only one-third of those with incomes over $50,000. Ninety-three percent of blacks also said that Wal-Mart was a good place for their family to shop and 86 percent said that Wal-Mart has a good effect on their neighborhoods. In both categories, blacks rated Wal-Mart more positively than any other racial subgroup. Wal-Mart helps the poor by providing them attractive jobs and low-priced goods. By raising costs to a firm that arguably helps poor Marylanders more than any other business seems to us ill-advised public policy.

Why, then, pass this legislation? It was promoted by labor unions that are frustrated by the fact that Wal-Mart workers are uninterested in unionization, and are growing numerically faster than the stagnant retail sector represented by unionized employees. Far from being a noble attempt to provide health care for the downtrodden, this effort is best thought of as anti-competitive special-interest legislation that would punish the efficient and hurt the poor in the process.

Bryan O'Keefe and Richard Vedder are researchers at AEI.
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