Economic Liberty as Equalizer

Taking some legislation that President Obama has proposed as his cue, Andrew Biggs makes the case against legislative corrections to the gender pay gap. All such arguments come down to the point that there are legitimate reasons that men, in aggregate, make more money than women, and Biggs gives the underlying reason why that can be expected to be so:

Discrimination is unlikely to drive the gender pay gap because, as economist Gary Becker pointed out a half century ago, when one employer underpays his workers, competing businesses can earn windfall profits by luring them away. If Employer A pays women 77 cents on the dollar, Employer B can hire all Employer A’s female workers at 78 cents on the dollar to replace his costlier male workers. This raises Employer B’s profits, while Employer A must now pay full freight for employees. The Royal Swedish Academy of Sciences noted, in awarding Becker the 1992 Prize in Economics, that “discrimination thus tends to be economically detrimental not only to those who are discriminated against, but also to those who practice discrimination.” As long as there is a critical mass of non-discriminating employers—and the growth of female-run businesses in recent decades and changes in social norms among males indicates there is—then employers’ profit motives will narrow the pay gap to levels justifiable in terms of productivity. Ironically, while the Left assumes that businesses readily sacrifice worker safety and degrade the environment in search of profits, they nevertheless believe employers forgo profits simply to satisfy a misbegotten desire to discriminate.

Of course, to the sorts of people who advocate for legislation like the Paycheck Fairness Act, to write the phrase “make more money than women” is to concede that there is, in fact, discrimination, because they begin with the belief that there are no legitimate reasons. Even if it means forcing businesses to ignore relevant factors (like skills lost during child rearing), to arbitrarily increase the cost of male workers (by offering, e.g., paternity leave), or attacking the very culture and biology that produces the substantial differences between men and women, zealous foes of perceived discrimination care only to work toward equivalent statistical outcomes (unless it’s men who are on the losing end). Whether that coincides with equivalent senses of happiness and fulfillment is another matter.
If, by contrast, one accepts the premise that biological reality and individual preferences create circumstances in which it is reasonable for some pay gap to exist, the question is wholly different: How do we squeeze whatever invidious discrimination there is out? Here, I agree with Biggs that the answer is economic freedom:

Even if some of the pay gap is due to discrimination, therefore, economic liberalization may be the key to reducing it. Because employers that discriminate lose profits relative to non-discriminating competitors, increased competition weeds out discrimination. Several studies have shown that as industries faced increased competition, through either deregulation or international trade, the gender pay gap shrank. And the pay gap is larger in monopoly markets without competition and smaller in start-ups and small businesses that must be productive in order to survive. Women need more markets, more enterprise, and more opportunity, not more regulation and litigation.

Arbitrary discrimination is expensive, so creating barriers to entry through government regulations only creates the circumstances in which existing businesses have the competitive space to play silly personal games.

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12 years ago

I was arguing the ’77 cents’ issue on that other blog last year. Turns out the per-hour gap is really only 6%. In America, women earn 94 cents to the men’s dollar, the rest is caused by women working less hours, overall.
Unfortunately, there’s no way to know why the 6% gap exists, but I can say that most of the raises I’ve earned came with a note from the boss explaining how my willingness to put in long hours at odd times factored-in to the decision.

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