A reader who followed my link to Amitai Etzioni’s outburst about “dead peasant insurance” is puzzled:
Maybe I’m missing something obvious here, but what exactly is the problem with Peasant’s Insurance? Both you and Mr. Etzioni say it’s bad but you don’t really explain why.
The obvious objection from an economic perspective, of course, is that it creates a perverse incentive for employers not to care about the lives of their employees. And to the extent to which the employer has a substantial ability to effect employees’ lifespan, I suppose that’s objectionable. However, I’d be surprised if Au Bon Pain had a substantial on-the-job death rate, so that doesn’t seem to me to be a very serious problem in many cases.
Is this the issue, or is it something else?
Incidentally, it’s quite common practice for tech companies to have “key man insurance” that compensates the company if an important employee dies. Do you object to this as well? If not, what’s the difference?
No, I don’t really think Circle-K is deliberately increasing the risk that its clerks will be killed in robberies so it can collect on their insurance. The objection here is moral, not economic.
“Key man” insurance is an old idea, and not obnoxious at all; the loss of a crucial employee can seriously cripple a company, and some lenders insist on it.
Dead peasant insurance is formally the same thing — a company buying insurance against the death of one of its employees — but it’s substantively quite different. The company has no insurable interest in the longevity of its low-level employees, who in general turn over quickly. Dead peasant insurance is just a complicated tax dodge, having to do with the fact that life insurance payouts are tax-free. There’s no reason to extend that rule, designed for ordinary life insurance, to the “dead peasant” context, but the extent of the ripoff here doesn’t put it very high on the list of corporate tax dodges.
What’s offensive is the decision of the company to put itself in a position where it benefits from its employees’ deaths. Perhaps it wouldn’t bother you to have your employer place a significant bet that you will die, but it would bother most people, which is why the companies involved never tell the employees about the existence of the insurance. (And of course they never share their “winnings” with the decedents’ survivors.)
The name of the practice is like the practice itself: a reflection of the deep, deep contempt the financial wizards at the top of big companies have for the people doing the actual work. The failure of the story — first broken by the Wall Street Journal — to develop “legs,” and of progressives and Democrats to jump all over it, says something profound about the actual workings of contemporary politics. Just imagine that one of the big unions had decided to play the same game with its members. (Not possible, of course, since unions don’t pay corporate income tax, but just imagine.) Don’t you think the right-wing spin machine would have made certain that the whole country knew about it?
Jane Galt seems to think that I’m concerned that companies that buy dead peasant insurance will then try to increase the mortality rate among their employees. She points out, correctly, that the insurance markets won’t let them do so for long; a company that collects on too many dead peasant policies will just see its premiums rise.
For me, the issue here is moral, rather than narrowly practical. (I say “narrowly” practical because there may well be bad long-term effects on productivity if everyone knows that companies treat their low-level employees as if they weren’t actually human beings, so that profiting from their deaths is no different from profiting from any other sort of event.)
Jane, the correspondent above, and I all share something: we’ve studied (and in my case taught) a whole bunch of economics. That study involves learning to suppress certain aspects of our ethical gag reflexes in order to look through the form of transactions to their substance. That’s useful training, but in some cases it goes to far, and this is one of them. (Adam Smith would have agreed with me, though most contemporary economics professors probably wouldn’t.) The relationship between employer and employee always has moral as well as economic dimensions, and this sort of nonsense, merely symbolic though it may be, tears a big hole in that relationship.
Here’s the thought-experiment: How many companies would carry such policies if they were required to notify the person insured when the policy is taken out and the next of kin when it pays off?