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Posts Tagged ‘Comparable Worth’

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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Normally I’m very happy to work for the Cato Institute, both because it is a principled and effective organization.

But I wondered about my career choices last night because I was stuck with the very unpleasant task of live-tweeting the Democrat presidential debate. Cleaning out septic tanks would have been a more enjoyable way to spend my time.

Of all the crazy things that were discussed (you can see my contemporaneous reactions on my Twitter feed), the Clinton-Sanders-O’Malley support for so-called Paycheck Fairness legislation would be at the top of my list.

Yes, I was irked by the myopic fixation on income inequality, the support for class-warfare taxation, and the reflexive advocacy for more government spending, but messing around with the price system – because of an assertion that women are paid 77 cents for every $1 received by men – is an entirely different level of foolishness.

Here’s some of what I wrote in 2012, for instance, when discussing proposals to give politicians power over wage levels.

…what’s really at stake is whether we want resources to be allocated by market forces instead of political edicts. This should be a no-brainer. If we look at the failure of central planning in the Soviet Union and elsewhere, a fundamental problem was that government officials – even assuming intelligence and good intentions – did not have the knowledge needed to make decisions on prices. And in the absence of a functioning price system, resources get misallocated and growth suffers. So you can imagine the potential damage of giving politicians, bureaucrats, and courts the ability to act as central planners for the wage system.

In other words, higher taxes and more spending will dampen growth, and that’s no good, but pervasive intervention in the price system can screw up an entire economy. Indeed, I suspect only bad monetary policy is capable of inflicting a greater level of damage.

Moreover, the left’s theory is based on the assumption that greedy businesses and investors are deliberately sacrificing profits by choosing to pay men more when they could hire equally qualified women for less money.

To use a highly technical economic phrase, that’s friggin’ nuts.

Yet our leftist friends want to replace market-based compensation with coercion-based wages.

Consider, for instance, a report from the Pew Charitable Trusts about initiatives on the state level.

…the California Legislature…sent Democratic Gov. Jerry Brown a “pay equity” bill… California isn’t alone in acting. …the governors of Connecticut, Delaware, Illinois, North Dakota and Oregon have signed equal pay laws this year. New York legislators unanimously passed a bill that Democratic Gov. Andrew Cuomo has indicated he will sign. And Massachusetts has two bills pending. Equal pay bills also were introduced in 21 other states.

The article cited my unflattering remarks on the issue.

…some critics, such as Daniel Mitchell of the Cato Institute, a libertarian think tank in Washington, said that the new legislation would put a “catastrophic burden” on businesses. “The notion that there’s some widespread discrimination in the marketplace, there’s just no real-world evidence for it,” Mitchell said. “They’re trying to give the government widespread authority to make very abstract judgments about the value of a job in the private sector.”

And I’m not the only critic.

Here are some excerpts from a recent column in the Wall Street Journal by Sarah Ketterer.

When it comes to economically foolish laws, California is second to none. A good example is the California Fair Pay Act… Like its national counterpart, it is an aggressive attempt to eradicate a wage gap between men and women that is allegedly due to discrimination in the workplace. But this wage gap is illusory, and the legislation will have unintended consequences, including for women.

She’s right. Policy that is bad when implemented by a state can cause widespread damage if imposed nationally.

Ms. Ketterer elaborates on why the proposal is misguided.

The Bureau of Labor Statistics (BLS) notes that its analysis of wages by gender does “not control for many factors that can be significant in explaining earnings differences.” What factors? Start with hours worked. …Men are significantly more likely than women to work longer hours, according to the BLS. And if we compare only people who work 40 hours a week, BLS data show that women then earn on average 90 cents for every dollar earned by men. Career choice is another factor. …Of the 10 lowest-paying majors—such as “drama and theater arts” and “counseling psychology”—only one, “theology and religious vocations,” is majority male. Conversely, of the 10 highest-paying majors—including “mathematics and computer science” and “petroleum engineering”—only one, “pharmacy sciences and administration,” is majority female. Eight of the remaining nine are more than 70% male. Other factors that account for earnings differences include marriage and children, both of which cause many women to leave the workforce for years.

And here’s the amazing part.

One of Obama’s top economic advisers, to maintain her academic credibility, admitted that the 77 cents number is fraudulent.

It’s unclear whether Clinton-Sanders-O’Malley know (or even care) that the number is garbage.  But what is clear is that legislation based on this dishonest data could cause massive economic distortions.

Though, to be fair, Ms. Ketterer points out that trial lawyers will enjoy more business.

What California’s Fair Pay Act will do, however, is make the state, already notorious for regulation and red tape, a more difficult place to do business. Companies must now ensure that every penny of wage differential between the men and women they employ is attributable to bona-fide differences in education, training, experience, quantity or quality of work, and so on. …even attempting to do so will only add to companies’ already substantial regulatory-compliance budgets. Some of these factors—quality of work, for instance—are inevitably subjective, yet trial lawyers will swoop in to turn every conceivable pay difference into a lawsuit.

A bunch of lawsuits would actually be the least-worst outcome.

What scares me far more is pervasive controls on wages, which is what our leftist friends ultimately prefer.

P.S. You probably won’t be surprised, given their history of mendacity, to learn that the left-wing bureaucrats at the Paris-based OECD also are peddling dishonest numbers to advance this ideological agenda.

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Back in 2010, I cited the superb work of Christina Hoff Summers as she explained that we should let markets determine wages rather than giving that power to a bunch of bean-counting bureaucrats.

She wrote that article because leftists at the time were pushing a so-called Paycheck Fairness Act that would have given the government powers to second guess compensation levels produced by the private marketplace.

For all intents and purposes, proponents were arguing that employers were deliberately and systematically sacrificing profits by paying men more than they were worth (which is the unavoidable flip side of arguing that women were paid less than they were worth).

Well, bad ideas never die and the Senate recently took up this statist proposal.

That’s the bad news. The good news is that it didn’t get enough votes to overcome a procedural objection.

Writing for U.S. News & World Report, Christina Hoff Summers explains why we should be happy about that result.

Groups like the National Organization for Women insist that women are being cheated out of 24 percent of their salary. The pay equity bill is driven by indignation at this supposed injustice. Yet no competent labor economist takes the NOW perspective seriously. An analysis of more than 50 peer-reviewed papers, commissioned by the Labor Department, found that the so-called wage gap is mostly, and perhaps entirely, an artifact of the different choices men and women make—different fields of study, different professions, different balances between home and work. …The misnamed Paycheck Fairness Act is a special-interest bill for litigators and aggrieved women’s groups. A core provision would encourage class-action lawsuits and force defendants to settle under threat of uncapped punitive damages. Employers would be liable not only for intentional discrimination (banned long ago) but for the “lingering effects of past discrimination.” What does that mean? Employers have no idea. …Census data from 2008 show that single, childless women in their 20s now earn 8 percent more on average than their male counterparts in metropolitan areas.

At the risk of sounding extreme (perish the thought), let me take Ms. Summers argument one step farther. Yes, it would be costly and inefficient to let trial lawyers and bureaucrats go after private companies for private compensation decisions.

But what’s really at stake is whether we want resources to be allocated by market forces instead of political edicts.

This should be a no-brainer. If we look at the failure of central planning in the Soviet Union and elsewhere, a fundamental problem was that government officials – even assuming intelligence and good intentions – did not have the knowledge needed to make decisions on prices.

And in the absence of a functioning price system, resources get misallocated and growth suffers. So you can imagine the potential damage of giving politicians, bureaucrats, and courts the ability to act as central planners for the wage system.

But that didn’t stop the economic illiterates in Washington from pushing a vote in the Senate.

Here’s some of what Steve Chapman wrote for the Washington Examiner.

President Barack Obama said it would merely mandate “equal pay for equal work.” Senate Democratic Leader Harry Reid of Nevada warned beforehand that failing to pass the bill would send “the message to little girls across the country that their work is less valuable because they happened to be born female.” …This is a myth resting on a deception. …The gap reflects many benign factors stemming from the choices voluntarily made by women and men. …Women, on average, work fewer hours and are more likely than men to take time off for family duties. A 2009 report commissioned by the U.S. Labor Department concluded that such “factors account for a major portion and, possibly, almost all of the raw gender wage gap.” “The gender gap shrinks to between 8 percent and 0 percent when the study incorporates such measures as work experience, career breaks and part-time work,” Baruch College economist June O’Neill has written. …What the alleged gender pay gap reflects is the interaction of supply and demand in a competitive labor market. Even in a slow economy, companies that mistreat women can expect to lose them to rival employers.

Regular readers know that I’m very critical of Republicans for their propensity to do the wrong thing, particularly since they presumably know better.

But I also believe in giving praise when it’s warranted. That’s why I’ve written nice things about Bill Clinton and also why I praised House Republicans for supporting entitlement reform.

Well, here’s a case where a very bad idea was blocked because every single GOPer in the Senate held firm and voted for economic rationality. Those Senate Republicans did the right thing and prevailed, just as they were victorious when they did the right thing on taxes a couple of years ago.

Mitt Romney, on the other hand, refused to take a position on the issue, showing that he is trying very hard to be the Richard Nixon of 2012.

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