How Equal Pay Is Anti-Women

By Nick Newell from Austrian Economics link Oct 15, 2014

Equal Pay Is Anti-Women

I know your reaction, and that’s ok, you aren’t the only one. How can an equal pay law, a government decree forcing employers to pay women the same as men for identical jobs, possibly be anti-women? Men and women would both earn equal incomes for equal work. Gender inequality would wash away, problem solved.

If only it were that simple.

Before you call me an ignorant misogynist that is only propagating the male privilege, one must seriously consider the economics of the legislation. The ends of the legislation are (I hope) what we all want: equal opportunity. The means of attaining these ends is my critique. If only we could judge laws by their intent rather than their effects, the story would be over. But reality beckons, and effects not intent remain.

The general argument for equal pay laws is that women identical to men systematically make less doing identical jobs. There is evidence to suggest that when taking otherwise homogenous units (accounting for continuous years in the workforce, number of hours worked, total years experience, etc.) of men vs. women, the women actually earn higher incomes than men. Comparing all women to all men is comparing apples to oranges. One reason is that some women take time off to have children whereas men do not. But for argument’s sake, let’s assume there is a gender inequality gap between male and female incomes. What are the economic effects of such a law?


The economics of an equal pay law

If an employer is biased against women, for whatever reason, and as much as you and I may condemn his biasedness, an equal pay law would do nothing to neither support our condemnation nor alleviate the grasp of male partiality on the hiring process.

Suppose the government saves the day by enacting equal pay legislation. What would be its effect on the hiring process? For employers that exercised no bias towards men (or any privileged class), the law does no good. These employers before chose their candidates based on merit rather than by arbitrary biological factors, as we seem to choose our political candidates nowadays.

Now let’s look at the case for an employer that is biased against women and has to hire under an equal pay law. Suppose the employer can only afford to give a $50,000 salary (which is also the going rate) and there is a man and woman both competing for the position with identical qualifications.

This biased employer is faced with a decision:

1. He can hire the man for $50,000
2. He can hire the woman for $50,000

If the employer is partial to men, as we are assuming he is, he will simply hire the man because the cost of hiring a man is the same as hiring a woman. Because the employer must pay the same rate regardless of sex, he faces no penalty for exercising his bias. Since he prefers a man to a woman and their costs are the same, he will choose according to his bias as before. The law has not punished the biased employer; it has punished the woman who remains unemployed.

The bargaining power of offering one’s labor for less money is one of the few weapons a worker has in the hiring process, and the equal pay law has effectively taken it away. The law, rather than raising women to an equal level, has restricted their bargaining position with employers. It has prevented people from competing, restricting their options of means to attain their ends.

Now suppose the same situation without such a law. We have an employer biased against women, and there are two identical candidates: one man, one woman. The biased employer has $50,000 to hire one of the two and is NOT forced to pay men and women the same because there is no equal pay law.
This biased employer is faced with a decision:

1. He can pay the man $50,000
2. He can pay the woman $50,000, but she will accept $45,000 if needed

This time, the biased employer can only hire the man if and only if he pays more to do so. The woman can negotiate, saying, “I expect $50,000, but I’ll take $45,000 if it lands me the job”. If the man costs $50,000, but the woman underbids him at $45,000, the employer pays a penalty if he chooses the man; he must pay an extra $5000. The employer will either pay $5,000 extra for the man, pay $5,000 less for the woman, or the man may even offer his work for $5,000 less.

If the employer hires the man at $50,000, a cost has been imposed on biasedness. If the employer hires the woman at $45,000, the intent of the equal pay law has been achieved without the necessity of the law. If the employer hires the man for $45,000, some of the job-seeking men will leave that particular industry because men in that industry now earn less, increasing the chances for women in the industry seeking employment. In all 3 possible cases, women are better off than under the equal pay law.

The difference with this case is that the woman can bargain with the employer, offering her work for less. Rather than being unemployed she lands the job, allowing more opportunities to develop further skills and move up into better positions. It has imposed a cost on the employer for exercising his bias who must now pay more for doing so. As Mises points out, “The market does not directly prevent anybody from arbitrarily inflicting harm on his fellow citizens; it only puts a penalty upon such conduct” (1). People are free to exercise their bias, but they will be penalized for doing so under a market economy.

It should not be understood that I am justifying women (or any marginalized class) making less. It is unfortunate if women of identical merit have to do identical work of men for lower compensation. But if that is the world we live in, allowing all parties to bargain in whatever way possible is the best mode of equalizing any differences, offering more opportunities to the marginalized class, and punishing biases in a market economy.


Some other thoughts that come to mind

The real application of an equal pay law forces employers to compare apples to oranges, or to make no comparison at all before the law. All candidates for a single position are not of exact identical merit; humans are too complex for that. People can work for different companies, of different durations, of different tasks, of different time periods, etc. The law would either force employers to consider candidates as identical enough, or employers would find ways to declare all candidates heterogeneous to evade its enforcement. It would be enforced when people aren’t identical or it would never be enforced at all. The law would be rendered either pernicious or impotent.

It must also be mentioned the sanctimonious assumption that women require the help of legislation to be equal or to be able to compete with men. To enact such a law would be to relegate women to an inferior position to men in society. How is this equality again? On these grounds alone I oppose such legislation. Furthermore, it leads to the danger of government legislating more of our personal lives and our freedom to contract as either employer or employee in order to promote social justice. I’ll let a Nobel Laureate take this one.

“We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice” – F. Hayek

Feminists, or other entities (I’m looking at you politicians), that promote equal pay laws are being anti-women. This type of legislation reduces opportunities for competing women, allows employer biasedness to continue without penalty, and creates another bureaucratic minefield that we all must carefully navigate at the expense of individual freedom. Of course this isn’t their intent, but that is the effect of such a policy. To the proponents of equal pay laws, I am inclined to repeat the line from Milton Friedman: “I’m on your side, but you’re not”.