The Paycheck Fairness Act vs the Market

As you likely know, the Paycheck Fairness Act died in the Senate earlier this week, with strong GOP opposition. (see coverage here). The key provisions of the bill are nicely summarized in the Christian Science Monitor:

The legislation…would require employers to prove that differences in pay are based on qualifications, education and other “bona fides” not related to gender. It also would prohibit employers from retaliating against employees who ask about, discuss or disclose wages in response to a complaint or investigation. And it would make employers who violate sex discrimination laws liable for compensatory or punitive damages. Under the bill, the federal government would be exempt from punitive damages.

Of course, introducing the bill that stood no chance of passage was largely a symbolic act designed to document the Republican “war on women.”

There are the obvious debates about the empirical record (e.g., if women make 77 cents on the dollar for the same employment, does this reflect genuine gender discrimination or some other factors such as time taken out for child rearing?). One might also question whether adding a new set of regulations makes sense in the current economic climate. But there is another debate about whether such legislation can be justified. For many libertarians, the answer is obvious.

The Economist blog, Democracy in America, takes up this issue and uses it to  excoriate Rand Paul for his rejection of the Paycheck Fairness Act. The critique hinges on Paul’s efforts to draw some parallel between the aspirations of the law and central planning:

“Three hundred million people get to vote everyday on what you should be paid or what the price of goods are,” Paul told reporters on Capitol Hill. “In the Soviet Union, the Politburo decided the price of bread, and they either had no bread or too much bread. So setting prices or wages by the government is always a bad idea.”

The Economist notes that wages are set by the employer, not a central planner. The only question is whether the employer has violated the provisions of Title VII of the Civil Rights Act of 1964 (prohibiting discrimination in employment) and the Equal Pay Act of 1963 (which prohibits sex-based wage discrimination), and this is a decision that should be left to the courts.

The piece moves on, then, to a thought experiment:

But should it be illegal to offer different pay for the same work based on an employee’s sex? Maybe not. Mr Paul’s argument here implies he thinks it should be okay. So, let’s try a thought experiment. How would you react to seeing a job advertisement that read: “Associate lawyer in patent firm, 3 years’ experience required, salary $100k for man, $77k for woman”? Is that okay? If not, why not? How about this: “Associate lawyer in patent firm, 3 years’ experience required, salary $100k for Christian, $70k for Jew”? How about “Salary $100k for white, $65k for negro”?

I don’t think there is evidence that Rand Paul thinks discrimination is “okay,” rather, I am assuming he believes—as most libertarians—that market forces are sufficient to limit the extent of discrimination.  But let’s take the thought experiment seriously. How would you react to the above job ads?

My first response is simple: I would not do business with firms that adopted these policies.  I assume that many others—perhaps even a majority—would have a similar response. Businesses might freely adopt any employment practices they wish, but it they could face a significant backlash from consumers. One might also assume that these employment practices would limit the effective labor market for these firms, further reducing their competitiveness and potentially driving them out of business.

So if we believe if freedom of association and the right of individuals to engage in voluntary economic transactions, we might be content to allow markets to sort things out without the intervention of the state.

But is this sufficient?

If the forms of discrimination noted above are universalized—e.g., every firm chooses to pay women less than men—the market would not impose much in the way of discipline.  Moreover, even if the market would impose discipline, none of this would provide much satisfaction for those who were discriminated against in the first place. Those of us who believe in a higher power have faith that God will ultimately judge the quick and the dead. But we nonetheless also seek justice in the temporal realm.

One response to this last point is evident. An individual has no entitlement to a particular job, and so the denial of employment (or the offer of employment at a particular wage) does not fall into the realm of justice. For those who wish to see a more elegant development of this argument, see our own James Otteson’s fine book, Actual Ethics.

The question of whether the state has exceeded its bounds by moving beyond the protection of life, liberty and property seems to me to be a separate issue (even though it is of great interest to many of us). Discrimination in employment and wages is already illegal. Given the laws currently on the books, is there great harm in facilitating access to information and reducing the legal transaction costs faced by those who have legitimate claims?

Someone make the argument.

2 thoughts on “The Paycheck Fairness Act vs the Market

  1. While discrimination against women in the workplace undoubtedly exists, study after study has shown that women are paid less overall because they make different choices about work than men make. Most recently, there was a study about women and science showing that women choose motherhood over career and that this affects the number of women in science careers and their pay:

    Women often have two careers, as I did, one before children, another after. Surely it affects a woman’s lifetime income, but it makes sense for family life to have one party at home raising the children – and that could be either the man or the woman, but it’s usually the woman.

    On The News Hour the other night, a physician who treats children with type 2 diabetes dated the childhood obesity epidemic to about the 70s when women with children began working in larger numbers. Children began coming home to an empty house and were told to stay indoors. They developed a sedentary lifestyle and probably spent alot of time in front of the refrigerator. There are many social costs to women working outside the home and leaving child care to others – this is just one, and soda bans will make absolutely no difference.

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