October 19 2010
Paycheck Fairness Act: A Bad Deal for Women
Last week the Department of Labor reported that for 14 straight months-the longest stretch since the 1930s-the unemployment rate remains above 9.5 percent. This is pretty glum, but don't despair, good news is on the way: The Senate will likely vote on the Paycheck Fairness Act this November! In addition to increased healthcare costs and the uncertainty about pending tax increases, the amendment to the Equal Pay Act of 1963 should really get businesses excited about hiring again.
If only that were the case. Irony aside, Americans should know that Congress is about to make a bad situation worse. The Paycheck Fairness Act is a misguided policy proposal which will hurt businesses and the economy and is likely to backfire on its intended beneficiaries: working women.
Proponents of the Paycheck Fairness Act note that, at a time when women earn roughly 60 percent of higher education degrees and hold 51 percent of high-paying management, professional, and related occupations, working women on average still earn only about 78 percent of working men's salaries. They presume that discrimination is the cause of this infamous wage gap, and seek to give women extra protection against sexism in the workplace.
Numerous studies show, however, that the gap arises not because of discrimination, but out of the individual choices made by men and women. Even the Department of Labor comes to the "unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action."
The wage gap arises because women have other priorities than trying to match men's earnings. Women tend to value jobs which provide more non-monetary benefits, like compensation in the form of health insurance or more flexible working hours to take care of their children and elderly parents. Women disproportionally choose occupations and industries which are known to be "family friendly" but pay less. Additionally, over 60 percent of women in their prime working years are married, experiencing less pressure to opt for careers with pay as the main deciding factor, because they can also rely on their husband's earnings to support them.
Yet, the Paycheck Fairness Act sets out to solve the problem of the wage gap by collecting records on employee pay based on sex, race, and national origin, issuing fair pay guidelines, and making it easier for aggrieved women to sue employers for alleged gender-based pay discrimination.
Unfortunately, working women, who are the supposed beneficiaries of the Paycheck Fairness Act, are likely to face more barriers to employment, not less, as a result of the legislation. The ambiguously-worded act allows only for wage differentials that can be proved a "business necessity" for which there is no alternative employment practice. This will provide ample ammunition for trial lawyers. It will also provide employers, fearful of the prospects of costly litigation to defend against pay-based lawsuits, with an incentive to avoid hiring women.
The act would also authorize subsequent regulations that require employers to collect and report pay information data on their employee's sex, race, and national origin. The Department of Labor would be charged with issuing guidelines regarding fair pay. This kind of oversight (or, less charitably, micromanaging) from Washington could encourage employers to avoid offering women the kind of flexible working arrangements that allow them to express their work-life balance preferences. Instead, employers would likely set pay structures more rigidly in order to allow for little, if any, room to argue that pay differences are based on gender or any other form of discrimination.
Court cases and government guidelines would ultimately move the economy closer to a "comparable worth regime," in which government plays an increasing role in determining wage rates. This should worry women, indeed it should worry all Americans, who appreciate the benefits of a free market and limited government. No single body, let alone one who is responsive to political pressures, is capable of determining fair pay structures in either industries or individual job positions. Businesses know that differentiated pay is a crucial mechanism for attracting and retaining qualified employees. Rigid pay structures will distort the labor market thus leaving our economy less productive.
Politicians like to identify problems they can solve for their constituents. Yet the wage gap isn't evidence of a problem. Trying to solve this non-existent problem through the Paycheck Fairness Act could make it harder for women to find employment opportunities that match their preferences, which is exactly what women don't need in this economy.