Tuesday, June 05, 2007

A Comeback for Comparable Worth

In the first edition of my favorite economics textbook, there was a section on "comparable worth." Eventually, my editor suggested I take it out, on the grounds that economic logic had finally killed off this bad idea. But like Lord Voldemort in the first Harrry Potter book, the idea was weakened, but not dead.

Here is what Fortune is now reporting:

It's baaaack!! Yes, "comparable worth," which faded out around the same time the Bay City Rollers were disbanding, is making a comeback, under the euphemism "pay equity". To wit: the Fair Pay Act of 2007. Introduced by Tom Harkin (D-Iowa) in April (Illionois Sen. and Democratic presidential hopeful Barack Obama is one of 15 co-sponsors) the Act notes the existence of wage differentials between men and women.

This is true; according to the Bureau of Labor Statistics, in 2005 female full-time wage and salary workers made 81% of what men did. What is more dubious, though, is the assumption that is the heart of the Fair Pay Act: that discrimination is the reason for all or most of the difference. And the act's remedies are absurdly misguided, injecting the federal government into the most routine pay decisions.

And here is what I wrote about the topic ten years ago in that first edition:

The Debate over Comparable Worth

Should engineers get paid more than librarians? This question is at the heart of the debate over comparable worth, a doctrine according to which jobs deemed comparable should be paid the same wage.

Advocates of comparable worth point out that traditionally male occupations have higher wages than traditionally female occupations. They believe that these occupational differences are discriminatory against women. Even if women were paid the same as men for the same type of work, the gender gap in wages would persist until comparable occupations were paid similar wages. Comparable-worth advocates want jobs rated according to a set of impartial criteria--education, experience, responsibility, working conditions, and so on. Under this system, comparably rated jobs would pay the same wage. A librarian with a master's degree, ten years of experience, and a forty-hour workweek, for instance, would be paid the same as an engineer with a master's degree, ten years of experience, and a forty-hour workweek.

Most economists are critical of comparable-worth proposals. They argue that a competitive market is the best mechanism for setting wages. It would be nearly impossible, they claim, to measure all of the factors that are relevant for determining the right wage for any job. Moreover, the fact that traditionally female occupations pay less than traditionally male occupations is not by itself evidence of discrimination. Women have in the past spent more time than men raising children. Women are, therefore, more likely to choose occupations that offer flexible hours and other working conditions compatible with childrearing. To some extent, the gender gap in wages is a compensating differential.

Economists also point out that comparable-worth proposals would have an important unintended side effect. Comparable-worth advocates want the wages in traditionally female occupations to be raised by legal decree. Such a policy would have many of the effects of a minimum wage, which we first discussed in Chapter 6. In particular, when the wage is forced to rise above the equilibrium level, the quantity of labor supplied to these occupations would rise, and the quantity demanded would fall. The result would be higher unemployment in traditionally female occupations. In this way, a comparable-worth law could adversely affect some members of groups that the policy is aimed at helping.

The debate over comparable worth continues. The courts have usually rejected the claim that occupational wage differences are discriminatory. Nonetheless, the comparable-worth movement has had some political success. For example, in 1985, a government employees union sued the state of Washington for discrimination using a comparable-worth argument. The case came before Circuit Court Judge Anthony Kennedy, who later became a justice on the U.S. Supreme Court. Kennedy decided against comparable worth, writing that "neither law nor logic deems the free market system a suspect enterprise." Despite their defeat in the courts, however, the advocates of comparable worth ultimately got what they wanted. The state of Washington eventually succumbed to political pressure and adopted a comparable-worth system for paying state employees.