The issue of the gender pay gap persists in many national conversations regarding women’s rights. April 2nd, 2019 was recognized as “Equal Pay Day.” This date symbolized how far into this year women had to work to earn what men earned last year. In 2018, Governor Inslee of Washington State signed into law the Equal Pay Opportunity Act whereby “employees are legally required to receive equal pay and career advancement opportunities, regardless of gender.”
The acceptance of the gender pay gap is not without contention. A recent study conducted by SurveyMonkey finds that “46 percent of men and 30 percent of women believe the problem of equal pay and gender parity has been ‘made up to serve a political purpose’ and is not a ‘legitimate issue.'” Another study out of Harvard found that the gender pay gap “can be explained entirely by the fact that, while having the same choice sets in the workplace, women and men make different choices.”
Clearly, the introduction of equal pay laws like the one introduced in Washington State would be met with both sizable support and backlash. For the sake of this argument, I will assume that the gender pay gap exists. Still, equal pay laws should not be introduced. Increased government intervention, the introduction of new market inefficiencies, and the general immorality of such laws suggest the ineffectiveness of equal pay laws.
Increased Government Intervention
With the introduction of equal pay laws, employers would be required to justify any and all earnings differentials between men and women in their workplace. Indeed, there would need to be far-reaching government oversight to ensure the adherence to the equal pay law. Perhaps a random ‘check-up’ or a newly formed government agency would do the trick. Regardless of form, more government action means more tax revenue from the country’s citizens. This means that American workers will be forced to subsidize the administrative and bureaucratic costs associated with the new equal pay law. In practice, it is impossible to find two equally qualified and equally productive workers. The slogan “Equal Pay for Equal Work” ignores the differences in preferences and capabilities of each individual. Companies would also recognize the increased costs of verifying and upholding equal pay laws. With the increase in company costs, the company faces the incentive to hire less employees. Overall, increased government intervention leads to less money in the pockets of the American people.
Market Inefficiencies
Just like minimum wage laws, the implementation of equal pay laws would necessarily force the exit of at least some individuals out of the labor market. Again, let’s assume that women are earning less than their male counterparts. By setting a price floor in the market, the equal pay law creates dead weight loss. That is, there are presumably individual women (and men) in the labor market who are content with making less than male or female counterparts. By robbing the individual laborer of this bargaining chip, equal pay laws would force some individuals out of the labor market.
Immorality of Equal Pay Laws
At its most basic level, equal pay laws violate the tenants of personal freedom and autonomy. Businesses are not able to pay employees what they think employees deserve. Employees are not free to negotiate salaries and wages to their own accord. Taxpayers are financially burdened with the funding for yet another example of bureaucratic oversight. In general, those who are more productive ought to receive compensation that reflects their production levels. Equal pay laws ignore this notion.
If one feels that a certain company is not paying them fairly, he/she has a plethora of options to protest. In a free market, this person is not forced to work at this company (or any company for that matter). This worker can quit and then utilize their rights of free speech to organize a boycott. Or, this individual can open their own business with a more “fair” compensation model. In short, there are much more effective methods for closing the gender pay gap (if indeed it does exist) than equal pay laws.
Great to see the development of your thesis on this topic since you first wrote about it last fall in Public Finance. The efficiency/equity trade-off is at the heart of Equal Pay laws. Finding a way to measure the relative costs of inefficiency vs inequity would help determine the optimal policy.