Wages for low-wage workers have been flat in recent years but health care costs have been increasing.  For a company like Wal-Mart, which pays many of its workers modest wages but does offer a reasonable health insurance plan, this is an invitation to adverse selection.  As the value of the wage component of the Wal-Mart benefit package has declined relative to the value of the health insurance component Wal-Mart has attracted more workers who want the job for the health benefits, i.e. sicker workers.  Reed Abelson writing in the NYTimes notes:

The Wal-Mart work force reflects a growing fear of many employers that the
people who work for them are increasingly at risk for health problems. Many of
Wal-Mart’s employees are obese, the company says, and a result is rapidly rising
numbers of cases of diabetes
or heart
disease. The prevalence of these diseases among Wal-Mart employees is
increasing much faster than the national average, it says.

"The low-income population generally is not as healthy and does not engage as
much in preventive care," said Diane Rowland, executive director of the Kaiser
Commission on Medicaid and the Uninsured. A risk that a company like Wal-Mart
faces, especially when it competes with smaller retailers that offer no
insurance at all, Ms. Rowland said, is attracting too many workers who want the
job primarily for the health coverage.

Wal-Mart’s health care costs are rising faster than their revenues.  Other companies are trying to shift some of the cost of health care onto their workers but Wal-Mart’s workers are already paying more than the national average so Wal-Mart may try to reverse adverse selection by adjusting their work and benefit package.  An internal memo suggests that:

…the company could require all jobs to include some
component of physical activity, like making cashiers gather shopping carts. It
also recommends redesigning and expanding benefits to appeal to a different type
of worker, someone more interested in buying a home, say, than in getting health
insurance.

Wal-Mart will probably be pilloried for this sort of thinking but you can hardly blame them when the workers are engaging in almost the identical actions in reverse.  The more fundamental problem is the tying of insurance to work, a problem for which I am afraid there no win-win solution.

Comments are open.

Addendum: Rey Lehmann offers excellent commentary.

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The NYTimes Magazine has an excellent article on the housing market based around a discussion of the development firm Toll Brothers.  Bob Toll the president of the firm is predicting that US housing prices will converge with those in Europe.

"In Britain you pay seven times your annual income for a home; in the
U.S. you pay three and a half." The British get 330 square feet, per
person, in their homes; in the U.S., we get 750 square feet. Not only
does Toll say he believes the next generation of buyers will be paying
twice as much of their annual incomes; in terms of space, he also seems
to think they’re going to get only half as much. "And that average,
million-dollar insane home in the burbs? It’s going to be $4 million."

Toll agrees with Glaeser et al. that the key force driving up prices is zoning and growth regulations.  In New Jersey it now takes Toll Brothers up to two million dollars in legal fees and ten years in time to get the permits necessary to build. 

Susan Wachter, a housing economist at the Wharton School at the University of Pennsylvania, has an interesting public choice insight about why zoning is worse in Europe.

European towns also have less incentive to encourage development,
Wachter says, because they generally do not, unlike their American
equivalents, depend on their local tax base to pay for education and
services, which tend to be federalized.

This implies that towns in states that reduce their reliance on the property tax – often done, as in CA, in order to "equalize" school funding or other expenditure – will soon restrict development.  Go to it graduate students.

Lots of other interesting material on the organization of the industry.

I nominate David Leonhardt for a Voxy for his NYTimes article, the FedEx Economy.  Leonhardt opens with a description of how FedEx flies a small fleet of empty planes through the night just waiting for a possible shock that they can rush in to smooth.  Sometimes it’s a shock to demand (an unusually large number of packages) other times it’s a shock to supply (a broken plane), in either case FedEx adjusts quickly to restore it’s economy to normal flow.

Project FedEx’s ability onto thousands of other firms, argues Leonhardt, and you have a much more flexible economy with an interesting new feature, "the micro-recession."

When of them strikes, activity slows for a few weeks, sometimes in just certain sectors, as companies adjust to a dip in demand.  It has happened much more often in the last few years than in earlier expansions, but growth has picked up each time, thanks in part to adjustments that businesses have made…Year to year, the economy is less volatile but in some ways it has become more volatile month to month.      

It’s not clear to me that more flexibility implies more micro-recessions, I’d like to see a model with that feature.  It’s also unclear to me how much credit the Fed should get for avoiding big shocks and how much FedEx should get (i.e. technological change).  Nevertheless, Leonhardt’s article is a big thought piece on the macroeconomy that one rarely sees in a newspaper. 

Rick Hartenstein is the Pharmacy Director at Ochsner Clinic Foundation in New Orleans.  He writes me with a question:

An article in our local paper this morning discussed the phenomenon of  sign-on bonuses at fast food restaurants.  Since this will almost certainly drive up wages in the area, and hospitals are highly dependent upon low wage jobs, I was wondering what you would advise our Human Resources VP to do.  I am an almost daily reader of MR and really appreciated the blogs during the hurricane (I was here at the hospital for 8 days).  Any other observations on wages and prices for us?  One thing is sure – the areas of the city that housed the majority of lower wage workers are obliterated.  We have massive vacancies in these types of jobs as do other employers. 

My response was as follows:

The rise in wages is a good sign because it means that employers are trying to draw workers back to New Orleans.  If employers were packing up and leaving then wages would be falling so there is some hope.  For the hospital Human Resources VP I would suggest that the situation is probably temporary so rather than higher wages he or she may want to follow the lead of the restaurants and offer "signing bonuses" and/or bonuses to be paid after say 6 months on the job.  The reason for this is that it may be very difficult to reduce wages later on – reducing wages typically causes a lot of discontent.  Furthermore, if you keep the wages of older employees constant but, as wages fall, offer newer employees lower wages you will have two people doing the same job being paid different wages.  That is not good for morale either.  In addition, to signing bonuses the hospital might want to think about what it can offer in terms of relocation services, housing, transportation and so forth.  Again, these would be useful temporary measures to draw workers to the hospital without creating a permanent expectation of higher future wages.

Comments are open if you have other suggestions for Rick.

SpamStockTracker bought a virtual porfolio of every stock recommended in spam emails and then tracked the results over the next several months.  The results?  Oh come on, I don’t really have to tell you do I? 

Lots of evidence that the housing market is slowing; prices are not rising as quickly as in the past, inventory is building and perhaps most tellingly insiders are selling shares of home building firms at record pace.

Some analysts say that the share sales by home builders are reminiscent
of the heavy dumping of stock by technology company executives just
before the technology bubble burst in 2000. For that reason, the
staggering level of insider sales has analysts and investors wondering
if home builders see something menacing on the horizon, like a cooling
of the real estate market.