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Pay Equity Errors


President Clinton has pledged to step up enforcement of the Equal Pay Act. The promised $14 million to fight wage discrimination was on his list of bribes to the American people, otherwise known as the State of the Union address.

The president’s Council of Economic Advisers says women make only 75 cents for each dollar men make. When the Equal Pay Act passed in 1963, the figure was 58 cents.

“Americans can’t be satisfied until we’re all the way there,” Mr. Clinton said.

From rim to dottle, the issue is bunk.

For the moment, let’s assume the statistic is valid. What’s the government got to do with it? I thought feminism was the belief that women are people too. If so, they should be entrepreneurial like men and not go whining to the government about their wages. And Mr. Clinton shouldn’t patronize them by announcing he’ll rescue these damsels in distress. How retro!

But women are discriminated against, Mr. Clinton and the feminist movement say. Do you mean to tell me that profit-hungry businessmen deliberately pass up the chance to bid talented, productive women away from their competitors? Now those are some imbecile capitalists; why do shareholders put up with it?

To believe that’s happening, you’d have to believe in a vast male capitalist conspiracy to keep the wages of women below those of men. There’s just one problem with the theory: why on earth would anyone join? You make money in the marketplace by satisfying consumers. And you do that by having productive workers and managers. How many employers are willing to forgo profits to keep women’s pay down?

Even if every male capitalist were initially stupid enough to join the conspiracy, eventually the incentive to cheat on the other conspirators and increase profits by paying women more would be irresistible. The plot would crumble.

Might some difference in pay exist in a competitive economy? Yes, indeed. The slogan “equal pay for equal work” is thrown around too casually. What is “equal work”? When employers hire workers, they are arranging for a stream of labor services projecting into the future. Naturally, employers value reliability as well as productivity. They want not only talented workers, but also workers who will be on the job long-term. If experience shows that one group of workers is less likely to be there long-term than another group, it stands to reason that the first group will command somewhat lower pay than the second. If the pay difference is outlawed, the group that would have been paid less will have a harder time finding jobs.

Like it or not, women are more apt than men to drop out of the work force to raise families. Even if a woman’s leave is brief, she is still likely to spend less time on work than a man is. Thus, on average there’s more risk in hiring a woman than a man, and many older women just don’t have the cumulative work experience that men their age have. Both factors would tend to depress women’s wages. If that’s discrimination, it’s rational and not pernicious.

When cultural changes reduce the likelihood of women’s leaving the work force for long stretches or increase the likelihood of their putting in extra hours at work, we would expect the gap to close. According to the Independent Women’s Forum, that is exactly what has happened since the 1970s. IWF cites the National Longitudinal Study, which shows that women 27 to 33 who have never had a child make 98 cents for every dollar a man makes. When pay statistics are adjusted for age, education, and other experience, the gap is smaller than 25 cents.

In a market economy no one decides what “men” and “women” will be paid. The configuration of wages results from millions of “utility maximizing” decisions made daily by employers and employees under changing supply-and-demand conditions. Aggregate wage statistics are uninformative. The mantra of “equal pay for equal work” is merely political pandering.

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Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.