The Economics of Corporate Fitness Programs

One of the many fads to sweep the corporate world in recent years is the fitness fad. The fad has two components: real costs and putative benefits. The real costs involve the installation of exercise facilities on company property, subsidies for off-site health-club memberships, a certain amount of paid time off for fitness programs, the hiring of nutritionists for company-subsidized cafeterias, and on and on. The putative benefits of the fitness fad are (1) more productive workers (healthy bodies, healthy minds, and all that); (2) workers who, in the longer run, will be less costly to insure; and (3) greater competitiveness in the labor market (i.e., being able to hire and keep employees who value fitness programs).

The fitness fad has five main proponents:

• Executives who wish to be known as "progressive" and "interested in employee welfare"

• Consultants who are hired by executives for the purpose of recommending the fitness programs that executives already favor

• Vendors of fitness-related products and services

• Those employees who already are physically fit, but who find it easier and cheaper to stay fit because of company programs

• Other employees who want to be part of the "in" crowd or to curry favor with bosses who preach fitness.

As for the immediate benefits of company fitness programs, I have observed that the already-fit tend to stay fit, but at the company's expense, while the less-fit give fitness a try, but it doesn't last. If it did, Americans wouldn't be getting fatter, would they?

What about the returns to the company in the form of lower health-insurance costs? Health-care costs rise with age. Assuming that fitness programs actually make employees more fit, which I doubt, a company is unlikely to reap long-run returns unless (a) its employees are exceptionally loyal or (b) it is able to hire equally fit replacements from other companies that have similarly effective (or ineffective) fitness programs.

And what about hiring and retention? Well, it's like an arms race in which the objective isn't to fight a war but to spend more than the other guy. If "everyone does it" in a certain industry, here's what happens:

• Workers who don't participate in fitness programs (that is, most of them) lose because compensation has been shifted from wages and non-fitness benefits toward fitness benefits. Therefore, that industry finds it harder to hire and retain workers for whom fitness isn't an important consideration; that is, productivity declines and costs rise.
  

• If firms in the industry try to raise prices in order to cover the costs of fitness programs, consumers find substitute products or services, thus cutting into the industry's sales and profits.

• And so, one way or the other, shareholders take a hit in the form of lower stock prices.

Who benefits? Trendy executives and employees who'd rather work out than work.

That's my hypothesis, and I'm sticking with it until I see hard numbers that prove it wrong.