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Archive for November 15th, 2020

I’m a big fan of New Zealand because the nation is a great example of how sweeping free-market reforms lead to very good results.

Perhaps most impressive, New Zealand has very high levels of societal capital, ranking #1 in the new Global Index of Economic Mentality.

And the country also gets very high scores from Economic Freedom of the World and the Index of Economic Freedom.

But that doesn’t mean policy is perfect. The current Primer Minister already has demonstrated she has a very limited understanding of economics, and now she’s proving her lack of knowledge by imposing a version of “comparable worth.”

In a column for the New York Times, lavishes praise on this misguided scheme, which would give politicians and bureaucrats the power to decide that certain professions are systematically underpaid based on the share of female workers.

…a New Zealand law aimed at eliminating pay discrimination against women in female-dominated occupations…provides a road map for addressing the seemingly intractable gender pay gap. …Instead of “equal pay for equal work,” supporters of pay equity call for “equal pay for work of equal value,” or “comparable worth.” They ask us to consider whether a female-dominated occupation such as nursing home aide, for instance, is really so different from a male-dominated one, such as corrections officer… What is at stake is…a societywide reckoning with the value of “women’s work.” How much do we really think this work is worth? But also: How do we decide? …In effect, New Zealand is engaged in a countrywide effort to…fundamentally rethink the value of the work typically done by women. But where equal pay processes are relatively straightforward, pay equity, when done properly, challenges us to think deeply and objectively about a job and its components. …To negotiate the New Zealand social workers’ settlement, for instance, a working group composed of union officials, delegates from the Ministry of Children, social workers and employer representatives undertook a comprehensive assessment… Unions in New Zealand are currently pursuing over a dozen public sector claims, covering, among others, library assistants, clerical workers and customer-facing roles.

Ms. Sussman writes about an “intractable gender pay gap,” but the academic evidence suggests that this concept is nonsensical.

Simply stated, if women were systematically underpaid, investors and businesses would reap enormous profits by by setting up female-only firms to take advantage of pay differentials.

Heck, it’s worth noting that even a member of Obama’s Council of Economic Advisors refused to support similar arguments in the United States.

For what it’s worth, the New Zealand legislation mostly seems to be a back-door way to funnel more pay to bureaucrats.

New Zealand has, so far, been able to take the steps it has because the government pays for these wages. It’s not yet clear when, or whether, these efforts will work their way into the private sector. The vast majority of New Zealand’s businesses are small, with some 95 percent of firms employing fewer than 20 people. …proponents of pay equity say arguments about affordability miss the point. “Employers are not entitled to make even small profits on the backs of underpaid women,” said Linda Hill, a member of the Coalition for Equal Value, Equal Pay, a group of feminists who have worked in different fields on this issue for years. “Businesses that can’t pay fair wages aren’t viable businesses.”

Wow, Ms. Hill must be the New Zealand version of Hillary Clinton (who, when asked about the potential impact of the 1993 Hillarycare legislation, infamously and dismissively said that “I can’t be responsible for every undercapitalized entrepreneur in America”).

By the way, Ms. Sussman likes the idea of imposing comparable worth in the United States, which she explicitly acknowledges is the opposite of free markets.

In America, where state support for gender equality has never been less robust, pay equity’s financial obligation will likely fall on individuals. Are we willing to pay more, say, at the grocery store, or to the home health aides who look after our elderly? Are we willing to re-examine the assumptions embedded in what we have been told are “free markets” for labor?

The bottom line is that comparable worth is a form of government-imposed price controls, in this case dictating the price of labor.

And, as explained in videos from Marginal RevolutionLearn Liberty, and Russ Roberts, it’s a very bad idea to let politicians interfere with prices.

P.S. For those who want to fully understand the economics of “comparable worth,” read this superb report by one of my colleagues from grad school, Professor Deb Walker.

P.P.S. New Zealand was not included in the study I wrote about last week, so it’s unclear how much bureaucrats already are overpaid.

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