Human Capital Briefs

Google Adds Benefits, Walmart Cuts Them; Oddly, the Logic Is the Same

February 13, 2015

At this point, most people are getting a little blasé about the employee benefits and perks that now come out of Silicon Valley companies and the tech industry: free food, free massages, concierge services to do your bidding, bike repairs, hair care, and more. Even traditional employee benefits like health insurance coverage and retirement plans have expanded, with pet insurance, customized wellness programs, and special payments to support children with disorders like autism.

Less known — unless a Walmart makes news when it ends health coverage for some part-time workers — are the new developments in benefits in other parts of the economy where the trend is in the other direction. In general, the rest of the U.S. doesn’t look a whole lot like Silicon Valley. Employers are increasingly cutting back on benefits like retirement plans and health care that used to be a standard part of full-time jobs.

The percentage of workers with a retirement plan from their employer dropped from 47% in 1992 to below 35% a decade later, according to the Employee Benefit Research Institute. The percentage with health insurance provided by their employer also dropped about 10 percentage points from 2000 to the end of the decade, continuing to erode slightly since then.

A big part of the decline in these benefits, echoing the Walmart story, is because more workers now are in part-time roles, where coverage is lower. But there is also a decline for full-time workers: Just about half have some health care provided by their employer now, and a bit less in the private sector, according to EBRI. And while it’s a little harder to get solid information on other types of benefits, none seem to be on the rise, and the one that offered a pathway for upward mobility — tuition reimbursement programs — has steadily eroded over time.

There is a common theme to these two trends. Both represent a shift in the benefits arena from a paternalistic model, where the goal was to look after employees and to treat them more or less equally, toward a more market-based approach, where the purpose of benefits is to help the company improve its financial performance.

Walmart’s recent decision to cut healthcare benefits for its part-time employees obviously cuts their labor costs for a group of employees who are not that important for the company to retain. It was facilitated by the fact that the Affordable Care Act makes it easier and cheaper for individuals to buy health insurance on their own, allowing the company to duck some of the complaints that these workers don’t have access to healthcare. Whether they can afford to pay for it is another question, but that’s seemingly no longer Walmart’s problem.

On the other side of the ledger, the free food, on-site gyms, and concierge services in the tech world make it easier to spend more time at the office and to cut down on tasks outside of work that would otherwise pull employees away from it. Apple and Facebook’s latest perk, paying for female employees to have a procedure that freezes their eggs, is pretty clearly targeted at hiring and especially retaining women, particularly those who want to put off having families in order to focus on their careers (or at least keep the option open to do so). The idea is that they don’t have to quit the company now to raise families, nor do they have to try to juggle both at the same time, something that might not work so well for the employers.

The inequality in these perks in part reflects the fact that workers with certain skills are in high demand, are difficult to replace, and it seems that they contribute a lot to the company. So their employers both try to hang onto them and get them to work even harder. And once one company in that market offers a new benefit, the others follow in order to compete. Workers who are not difficult to replace and whose contributions can’t be as easily assessed can be squeezed harder to get costs down the old fashioned way, just by cutting their compensation. Here as well, once one company starts cutting, others follow.

It’s tempting to ask whether either set of employers actually have evidence that their approaches pay off. Does pet insurance really improve employee retention and performance? Don’t the cuts in benefits on the other hand hurt turnover and productivity? How much of the difference in these two approaches to workers is really just due to different assumptions about how to think of labor — is it something to be minimized, as the cutting employers apparently believe, or is it something to be managed carefully and cultivated, as the tech companies seem to be doing?

Even though the new perks in the tech industry are designed to benefit the companies, there is no doubt that the employees are better off and happier with these benefits than without them. There is also no doubt at the other end of the spectrum that employees are worse off having their benefits cut.

In the end, the shift from the paternalistic model to the employer self-interest model of benefits increases the inequality in compensation, making it more unequal than wage data alone would suggest. The inequality in benefits is particularly serious because so many employees are now down to zero support for retirement and for health care — and you can’t cut much further than that. Government programs — Social Security for the former and the Affordable Care Act for the latter — aren’t at the level needed to compensate for the decline in employer provided benefits. Taken together, it’s hard not to see that as a big problem — and a problem that no one is really addressing.