December 14 2011

Learn Liberty Explains the Wage Gap (And How To Think About Discrimination)

Libby Jacobson

Courtesy of the folks at LearnLiberty, St. Lawrence U. Econ professor Steven Horwitz tackles that persistent claim that women are underpaid in America compared to men (it's a few months old, but still fabulous).

As Horwitz says, it’s not that women are necessarily discriminated against, but rather, the choices they make tend to place them in lower-paid fields or part-time positions, and that women also tend to spend more time raising children than men. If you watched to the end, you’ll note that he doesn’t conclude by saying “and that’s just the way it is, now make me a sandwich.” Instead, he explains that it's entirely possible that cultural expectations 1. guide women away from science and engineering and towards less remunerative fields like social science and education, and 2. foist more responsibility for child rearing on women than on men. “If we think those are poor choices, if we want to see women’s pay more equal to men… we need to convince more women to go into areas such as the sciences and mathematics and engineering, and convince men to take more responsibility for children in the house.”

Horwitz provides a good template for addressing social issues like discrimination. In the case of the gender wage gap, instead of passing equal pay laws (hello, unintended consequences), we should really look at the differences in the work, hours, and professions that men and women choose. If we think those choices are unfair, we can encourage people to make different choices, but we should not pass laws that either ignore the choices they do make, or that try to force people to make the choices we would like them to make (Megan McArdle has more insights on this point).

Where else might this framework be useful? One place I suspect is the issue of discriminatory lending – is XYZ Bank disproportionately giving mortgages and loans to people in group A, and not very much to groups B and C? Is the average person in groups B and C in a worse financial position than A? If so, the answer is not legislation that forces banks to guarantee riskier loans at inadequate interest rates for people in B and C. That kind of legislative fix distorts markets, and if it goes on long enough, leads to a depressed economy and high unemployment, which unquestionably harms the very people the law was intended to help. Instead, we should look at why B and C fare so poorly compared to the relatively privileged people in A, and try to figure out how to fix those problems without the kinds of clumsy, top-down solutions government usually offers (big-government types would do well to look at their own record).

 

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