Friday, April 27, 2007

Is "Equal Pay" a Good Idea?

No, it is a terrible idea.

"Equal Pay" goes by other names, such as "Comparable Worth", and is intended to remedy the dubious claim that men earn more than women. And in the interest of understanding why it is such a bad idea from an economic perspective, we'll ignore several other issues:

1. It has not been shown that, when all other variables are held constant, women make less than men.

2. The phrasing "equal pay" is loaded; opposition to it implies that you are opposed to equal rights.

3. It is a tribal concept, designed to instill resentment against the male "tribe". Otherwise, it would be called "More Pay", as opposed to the envy-laden "Equal Pay".

4. Enforcement would require new armies of bureaucrats to police the private affairs of others.

So, let's assume that, on average, women really do earn less than same-age, same-skilled, same-experienced, and same-educated men -- and are also equally productive at identical jobs with the same employer under identical conditions -- and that this can be ascertained by objective and politically-neutral parties without any interest in the outcome.

Note, by the way, the phrase "on average" in that sentence. That implies that, on balance, women earn less than men -- which means that there are times when women might make more than men. So, in order to ignore the idea of men also being entitled to "equal pay", then we need to further assume that women universally make less than men under the above conditions. That is, assume that the highest-paid woman never makes more than the lowest-paid man.

One would think that under these conditions, it would be prudent to investigate why women make less than men before passing legislation to "fix" the problem. Or, perhaps it is simpler to just assume the most inflammatory reason and make that the basis of your legislation. In this case, that assumption would be, "Men discriminate against women."

OK, there are two situations where women might be discriminated against:

1. Women are less valuable/productive/skilled than men for some jobs, and this is reflected in their pay.

2. Women are NOT less valuable than men, but employers gratuitously pay male employees more for some reason.

By the process of elimination, Item #1 seems much more plausible. Alternative #2 appears rather unfounded, and would be illustrated by an employer paying everyone $100, and then declaring, "To hell with the bottom line. I'm going to give each male employee an extra $50 simply because they're male." Or, it's the equivalent of an auto salesman telling a male customer, "The price of the car is $20K, but since you're a guy, I'll hand over $2K of my profits, and sell it to you for $18K."

Or, it would require a mass conspiracy among every employer to "underpay" women with the understanding that no other employers will attempt to offer them more; all employers agree to ignore the temptation of higher profits for the sake of underpaying women.

And so, we are left with Item #1, which implies that employers are "guilty" of paying men and women what they are worth -- and that the solution is to force them to pay women more than what they are worth. This is where commerce ends and welfare begins. And it is where employers will follow the laws of supply and demand: If the price of labor is forced higher than its equilibrium, then the quantity demanded will decline. In other words, "equal pay" would result in female unemployment.

There are only two ways to avoid this resulting female unemployment:

1. Employers can ignore the spirit of the law by cutting back elsewhere; e.g., women's benefits, a comfortable working environment, etc.

2. Another layer of legislation can be added that would require employers to not only pay women the government-approved rate, but also compel them to hire women. That is, we could have a government-directed workplace, where employers are told who to hire and how much to pay them. This would result in a decline in affluence and personal freedom for everyone, male and female -- and is a little too close to fascism for, we would hope, most people to be comfortable with.

"Equal Pay" is a bad solution to a problem that does not exist.

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