By Ryan Bourne
Tuesday, May 28, 2019
California senator Kamala Harris has unveiled a new plan
to close the gender-pay gap.
Under Harris’s proposal, companies with 100 or more
employees would have to report pay differentials between men and women,
controlling for “differences in job titles, experience, and performance.” If
they could not show that men and women were paid the same after factoring these
controls in, they would be fined 1 percent of profits for every 1 percent gap
in pay.
This “solution,” at one level, is curious. The statistic
on which widely reported claims of a “gender pay gap” are based — that
full-time female workers are paid only about 80 percent of what full-time male
workers make — doesn’t account for job types, experience, or performance. In
that sense, Harris’s legislation recognizes that such metrics are meaningless
or, at least, too crude. But that means there’s also no reason to think that
beefing up “equal pay for equal work” legislation by putting the presumption of
compliance onto employers will close the headline rate everyone discusses.
In short, Harris’s plan does not really target the
“gender pay gap” at all. It attempts to further stamp out gender pay
discrimination by “policing at the elbow.” That aim will have fewer opponents.
Yet the truth is, more factors than she accounts for determine wages. Her
legislation would create significant compliance costs and avoidance strategies,
lead to potential surpluses and shortages of workers, and could even hurt women
who currently enjoy flexible working arrangements.
To see why, consider the Game of Thrones cast. Playing each character really constitutes a
different “job.” The company producing the show could easily argue it has no
pay gap at all then, in a literal sense, even before collecting any
information. Yet suppose there were two extras running from Drogon in King’s
Landing in that penultimate episode — one male and one female — with the same
role, number of lines, screen time, and measurable prior experience. There
still might be good reasons why they could command different pay rates.
The man, for example, may be of a certain height or look
that is in high supply among the pool of prospective extras. The woman might
perfectly reflect the needs of the show but have a lucrative offer to appear in
another show, requiring higher payment to attract her. Quite simply, beyond
“job titles, experience, and performance,” supply and demand and other factors
determine pay in actual markets. Not accounting for them risks finding
discrimination where it doesn’t actually exist.
Indeed, it doesn’t make sense to think that work is of
“equal value” because you’ve controlled for observed performance factors. It’s
a mistake that harkens back to Karl Marx’s labor theory of value. Skills,
experience, and performance do help determine wages, which is why controlling
for them lowers statistical “gender pay gaps.” But supply and demand matter
too. If there are hundreds of applications for one post and none for another,
then paying the same amount for the two jobs makes little sense.
Take workers who stock shelves in supermarkets and their
warehouses. Shelf-stackers in both locations ostensibly do “the same job.” If a
supermarket chain gave them the same job title, and all other experience and
performance were equal, this legislation would mandate that workers in both
locations be paid the same. Yet it is plausible that working in a warehouse may
simply be less pleasant than working in a supermarket, if the warehouse is
colder or in a more isolated area or those who work there have less agreeable
hours. If men have a greater willingness to accept these unpleasant conditions
in return for the “compensating differential” of higher pay, this again would
show up as a pay gap, with the company being liable for fines under Harris’s
legislation. Yet paying both sets of workers the same could create severe
shortages of warehouse workers, or surpluses of supermarket employees.
To avoid such fines or outcomes, businesses would likely
revise job titles to ensure that people were labeled uniquely. That could lead
to hierarchical disputes within companies and presumably to legal challenges,
but it would be a solution. The alternative is to face the prospect of running
complex regressions and aggregation calculations to determine whether, on net,
men and women are equally paid. That would require the intrusive collection of
data on employees’ work history or a more rigorous evaluation of employee
performance, either of which itself might have undesirable consequences for
workers.
Performance is particularly subjective. Earlier this year
the members of the U.S. women’s soccer team filed a gender-discrimination
lawsuit against the United States Soccer Federation, claiming they were paid
less than the male team despite more success. But “performance” in this
industry is relative to other competitors, and the male World Cups are
undoubtedly more lucrative, because they attract vastly more spectators.
These missed factors and calculation problems
notwithstanding, Harris’s plan could also have unintended consequences for
working women. In the U.K., large organizations (greater than 250 employees)
are already required to report median and mean hourly gender pay gaps. The energy-
and gas-supply company Npower, for example, reported a median gender pay gap of
18 percent for 2018. Yet it explained that this was owing in part to a range of
benefits and flexibility measures that the company offers to employees in
return for salary sacrifice, including child-care vouchers and flexible working
arrangements designed specifically for working mothers. Under Harris’s
proposal, this would make the company liable for fines, even though the
compensation arrangements are something women actually chose.
Harris’s plan, then, is well-intentioned. But it simply
ignores that the labor market is a market and that as such it is bound up with
subjective valuations, free choices, and the vicissitudes of supply and demand.
With such an array of factors determining wages, it’s incredibly difficult to
use top-down statistical approaches to root out genuine gender discrimination.
Putting the onus on employers in this way risks a combination of “false
positives” and firms seeking ways to avoid fines and could well hurt working
women.
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