Mr. anderson is an economist in Chattanooga, Tennessee.
One of the best ways to cause dissension in the workplace is to let everyone know what everyone else is being paid. One employee who carries a heavier-than-average load sees another worker, whose job entails seemingly less responsibility, receive higher pay. The wage structure in that particular workplace, the first employee reasons, is patently unfair and unjust.
On a larger scale, people who work in one sector of the economy may believe they are unfairly being paid less than workers in another economic sector. For example, schoolteachers make less than autoworkers; librarians are paid less than crane operators; nurses make less than doctors, and almost everyone makes less than the best-paid professional (and quasi-amateur) athletes.
On this issue, there is no question that resentment exists. When I taught school a few years ago, one teacher who was a militant member of the teachers’ union told me that only socialism could guarantee justice in the workplace; the present system, he noted, paid him far less than he deserved.
“Autoworkers only build cars,” he complained, “But we (teachers) build people. Yet, we get only half of what an autoworker receives.”
One can dispute his logic, but there is no denying the resentment and the envy is there and is alive and just waiting to be placed into a broad scheme of public policy. That policy, of course, is called Comparable Worth, and it promises to be the pay issue of the next few years. It is the purpose of this paper to examine the claims of both comparable worth proponents and opponents and to see if this concept can survive rigorous economic analysis.
For an economic concept that would prove to be as complex as comparable worth, the driving idea behind it is naively simple: what the ancients called the “justum pretium,” or, in today’s words, the “just price.” That is, “economic justice,” not the market should be the focus of determination of what a wage should be. Those who “deserve” high wages will receive them and those who do not will find their pay commensurate with their social worth.
A librarian, for example, may have both an undergraduate and graduate degree in his or her field but make far less than a truck driver who dropped out of high school when he was sixteen. A college professor, who, most likely, had to suffer through the pain of rigorous Ph.D. studies may find himself on a lower pay scale than one of his former students who failed to finish college but turned out to be a top-notch salesperson.
These inequities, declare comparable worth proponents, will be a relic of the past when their ideal legislation passes a vote of Congress. The new pay law will insure, so they say, true justice in the workplace with each worker receiving economic benefits that are due him or her.
For the most part, jobs that are targeted by comparable worth advocates are presently dominated by women. Thus, proponents claim, such legislation would really be an anti-sex discrimination, for the differential in pay among different occupations is due more to sex bias than to anything else. Appeals to the market are simply met with the response that if the market is “unfair,” then criteria other than market criteria must be used when worker pay is at stake.
The proposed set of laws, then, would mandate that pay be determined for every occupation by government edict put out by bureaucrats who would determine what each job’s social worth may be and what compensation should be given it. Therefore, the librarian may be judged more important to society than, say, a truck driver with pay scales set accordingly. Likewise, a schoolteacher might finally find himself or herself with a salary that exceeds that of the autoworker. The comparisons are endless as are the possibilities for “remaking” the economy.
In examining the feasibility, practicality and, yes, justice of such a scheme, we must ask the question: “Is this practical?” While feminists and other ideological purists may decry the use of the term “practical,” one must remember that a government which attempts to force upon its citizens changes that cannot possibly be made or administered is practicing the worst kind of tyranny and injustice. Therefore, the real possibilities of actually implementing a successful comparable worth wage plan must be taken into account as seriously as one might consider any ideological questions. The two of them cannot be separated, for reality is the ultimate test of ideology.
At the present time, a Federal judge has ruled that the State of Washington must come up with a comparable worth plan to “redress past discrimination” by raising pay scales in state occupations in which women hold a majority of positions. Other states and municipalities are also looking into comparable worth pay plans. However, the most pertinent question in this matter deals with whether or not such a pay plan could be imposed upon all U.S. employers, public or private, as a whole.
Addressing this issue requires first that we look into what constitutes a wage and how wages are set in the marketplace. After examining the basics of pay, this paper will then examine the feasibility of establishing a grand comparable worth plan in this country as well as look at the implications of the plan. And, finally, this paper will look at who would really benefit from the comparable worth proposal.
How Wages Are Determined
Contrary to popular belief, an employer does not set a wage; rather, the pay a person receives for his or her work is set by the consumer of that product or service rendered by that person. Pay is not a function of what it costs a person to prepare for the position he or she holds; instead, it is a function of the value consumers place upon the marginal productivity of that job. Writes economist Hans Sennholz:
Consumers, who are the ultimate directors of the production process, attach value to labor services. They judge labor like any other factor of production, by the improvement it adds to their well-being . . . . a worker’s productivity is determined by the value consumers attach to his services and achievements. Employees, employers and capitalists all are subject to the whims and wishes of consumers who wish to be served at the lowest possible price.
Some of the evaluation of labor made by consumers is explicit and some implicit. For example, we may value a certain doctor’s services because he has successfully treated many of our illnesses. We meet the doctor face-to-face and we see direct results. On the other hand, we cannot directly judge the performance of one particular worker on an assembly line (unless his work is exceptionally shoddy or exceptionally good). We can, however, judge the finished product which that worker had a hand in creating, and the value we place on that product will determine, indirectly, the value we place on his job.
This point is a vital one in labor economics, yet it is often lost in the economists’ maze of graphs, charts and mathematical equations. The market, which is directed by the spending habits of consumers, ultimately directs the labor process from hiring to wage paying. Employers are not autonomous beings in this matter, as some market critics have said. Rather, they are ultimately directed by consumers.
Of course, this does not mean that employers always listen to consumers. Indeed, the economic graveyards are full of the corpses of businesses past whose owners either failed to listen to the market or could not make the necessary adjustments to stay profitable. The point here is that ultimately the consumers’ voices will be heard and business owners must either listen or cease doing business.
While consumers will ultimately decide whether or not a business will exist and who will be paid what, other factors play an important role as well. For example, one must ask whether the enterprise is capital or labor intensive. For obvious reasons, a capital intensive enterprise will pay higher wages than a labor intensive one. A large machine will simply turn out more products than someone working by hand. A steelworker, unionized or non-unionized, works with large, productive, multi-million-dollar tools; a .garment worker, on the other hand, works with a single sewing machine. The sheer output of the two different workers spells out why the steelworker is better-paid than the garment worker.
And, finally, there is the question of how the right job is matched with the right worker. In order for employment to occur, both employer and employee must agree on all conditions, including working hours, pay and job environment. Comparable worth proponents, of course, disagree with that statement, as do others who feel that government must intervene into the labor market. And, they point out, many workers are understandably unhappy with their jobs and wages. But being unhappy does not undercut the fact that each worker chooses his or her occupation and in so choosing also accepts the pay and environment that comes with it. (We are assuming a labor market determined in a market-oriented society as opposed to a socialist one in which government chooses occupations for its citizens.)
The Worker for the Job
Choosing a particular job at a particular place does not necessarily mean that one always likes what he or she has chosen. All of us want to be paid more; likewise, each person seeks the maximum fulfillment and benefits from his job. What is at issue, however, is the present occupation versus the current alternatives. One may be unhappy in his job, but he would be even unhappier elsewhere. Thus, a teacher may complain about the higher pay received by an automobile worker, but he chooses not to be an autoworker and receive that paycheck. For him, the opportunity cost of being an autoworker as opposed to being a teacher is too high.
Despite the language of labor union officials and the Clayton AntiTrust Act, labor services are commodities with price determined by supply and demand. And just as government intervention into commodities markets has caused distortions and misallocations, so, too, does intervention cause problems in the labor market. Unemployment caused by excessive minimum wages has been well-documented, especially among youth and minority workers. Yet, the problems caused by the current minimum wage law would be miniscule compared to the dislocations that would invariably be caused by comparable worth legislation. In this next section we will examine the reasons for this claim.
Sex and Wage Differences
As has been already shown, wage rates are a function of consumer demand, labor supply and opportunity cost. These factors play the major role in determining pay for both men and women in all occupations. One then asks: Why, on the whole, do women receive less pay than men, often for the same jobs? Which leads to the second, and more pertinent (for this paper) question: Why do some occupations, especially those dominated by women, pay less than other occupations, especially those dominated by males?
For many years feminists have sported buttons with 59¢ painted on them, the figure representing the pay women receive to each dollar earned by their male counterparts. (That number is obsolete. A recent Rand Corporation study shows that the percentage has risen to more than 64 percent and that 20-24 year-old women earn about 90 percent of what men in that age bracket earn.) The button, they say, is proof that women are the subject of extreme discrimination in the workplace.
Yet the feminists’ argument fails to account for the opportunity cost of hiring male labor. Write Alchian and Allen: “. . . if it (pay differential) were prejudice, whose prejudice is it? Why would male employers forsake the profits that could be achieved by hiring equally productive women at lower wages?” In other words, if the feminists’ argument were true, then employers would be foolishly saddling themselves with excess costs by hiring the more expensive male workers. And to further complicate the situation, it has also been statistically shown that “women in their thirties during the 1970s who have worked continuously since high school or college earned slightly more than single men.”
In sum, according to Alchian and Allen:
. . . the basic factors explaining female-male differentials appear to be the effects of the female’s childbearing productivity and work in the household on her work experience—not employer prejudice and discrimination.
Economist Thomas Sowell, using the same information, concludes:
Married women don’t do nearly as well in most occupations for reasons that are obvious to anyone familiar with the responsibilities of wives and mothers. Married men do better in their careers than single men or single women for reasons that are equally obvious to anyone familiar with how much of their personal and social needs and responsibilities are taken care of by their wives.
For the same reason that a married woman can put less time into her career than a single woman, a married man can put more time into his career than a single man, relying on his wife to take care of everything from sex to socks. Whatever the merits or demerits of the present division of domestic responsibilities, it is not employer discrimination on the job.
Full Time vs. Part Time
Sowell goes on to point out that much of the wage differential between men and women comes between married men who work full-time and part-time female workers or women newly divorced or widowed who are entering the job market following a long absence from working. He writes:
Obviously, a woman in her thirties or forties who has been a housewife for a decade or two cannot re-enter the labor market, after her husband is gone, at the same level as a man who has been working full time all the years she was taking care of a home and children.
While this information is valuable in helping determine why the “average” woman makes less than the “average” man, it only explains in part why many female-dominated occupations seem to be at a lower wage scale that the male-dominated ones. To further explain this differential, we must go back in history.
Before the advent of the modern economy, women labored in the fields alongside the men (this can still be seen in Third World countries as well as communist-dominated agrarian societies such as China). The early factory system brought men, women and children from the farms to the mills, and, in the first days of the Industrial Revolution, it was not unusual to see entire families on the factory floors.
As capital became more sophisticated and more abundant, the need for factory labor began to subside (which helped lead into the service-oriented economy), at least as a percentage of the entire work force. As real wages rose, many women were able to stay at home while their husbands worked, thus easing much of the burden placed upon them by having to take care of household chores, raising children and working at a full-time job.
Following the Second World War—which served as an employment catalyst because it opened large segments of the labor force to women—the number of married women working as a percentage of the female labor force began to rise. At the same time, women’s pay relative to that of men began to fall, reversing a prewar trend. But by the late 1960s and early 1970s, both ratios began to reverse themselves and it is assumed that female pay will continue to rise.
The point here is that female pay has fluctuated as a result of social changes, not discrimination. It is safe to assume that whatever employer discrimination against females has existed was stronger before World War II than after (the same can be said for racial prejudice as well), yet female pay as a percentage of male pay fell for nearly 20 years following the war. And before the feminist movement and accompanying “affirmative action” legislation gained real influence in this country, women’s pay began to rise again.
Nor is women’s pay the only dynamic aspect of female employment. While some job categories remain dominated by women, other employment areas that were once a male bastion are presently seeing an influx of women. The following table demonstrates this statement:
Occupation 1960 1972 1982
Accountant 16.8 21.7 38.6
Authors/Writers 34.8 31.7 42.9
College Professors/Administrative 21.8 28.0 35.4
Cooks 63.8 69.8 65.7
Computer Specialists N.A. 16.8 28.5
Engineers N.A. 0.8 5.7
Bookkeepers 83.6 87.9 91.8
Insurance and Real Estate Agents 14.6 22.7 37.1
Lawyers and Judges 3.7 3.8 15.4
Medical/Dental Technicians 62.4 69.5 72.9
Registered Nurses N.A. 97.6 95.6
Physicians/Surgeons 6.9 12.7 23.8
Salaried Managers 13.2 17.6 28.0
Social Scientists 24.6 21.3 38.0
As one can clearly see from this table, the work world is rapidly and decisively changing, at least in the relationship of women and their careers. But the problem with comparable worth legislation is that it ignores this rapid change. Instead, proponents want to somehow freeze the employment world in its present state, an action that would not only be unjust to those who have not yet begun their careers, but would also be impossible to implement save changing our entire social order, an event not likely to occur. Indeed, the implementation of comparable worth legislation would serve to relegate women to traditional roles and deny them the opportunities to move into employment fields that were once almost totally dominated by males.
The reason for this strong charge is that an attempt to base worker pay according to both sex and occupation would require far more occupational stability than the present system allows. At the same time, new job categories would simply have to either be forbidden or face the same kind of Federal scrutiny that now is applied to new drugs and health aids. In other words, our economy’s dynamic growth would disappear, being replaced by the stagnation that now characterizes the socialist bloc nations.
Anyone who has lived for more than a decade can easily see that job categories do not last forever. Refrigerators made the iceman obsolete in the 1930s and 1940s, and the new high-tech era now upon us has overhauled job categories with a vengeance never seen before. Positions that until a few years ago didn’t even exist are now heavily sought after by capable and bright persons. And jobs that were a mainstay in our economy a decade ago are only memories.
Comparable worth legislation would also be the most anticonsumer set of laws ever passed because it would delegate to government the choices that now rest with consumers. As we have pointed out earlier, jobs and their pay are ultimately decided by the millions of votes cast in the marketplace. At its very best, government can only move after the fact, and by the time the legislative process had solidified its hold upon the economy, consumer preferences would have already directed massive changes which the new government directives could not control.
As Ludwig von Mises and Friedrich A. Hayek have pointed out in their numerous volumes, government simply does not have the resources to keep up with the vast amounts of change generated by the private sector. The only way for government to handle such change, then, is to make it illegal and banish the private sector to an underground existence. But such action, as the people forced to live in communist/socialist dominated nations have learned, extracts a dreadful cost, especially from the middle class and those in lower-income brackets working their way upward. An unchanged economy is a stagnant one, and a stagnant economy offers neither the wealth nor the freedom that people can find in a vibrant, dynamic, unshackled one.
Thus, comparable worth proponents might find, if their pet legislation were to be implemented and enforced, that they might win the battle but lose the war. True, the law would mandate that their financial positions be improved relative to others, but, in the end, they would ultimately be worse off than before as the economy deteriorates.
Why, one might ask, would people continue to press for a national comparable worth law in the face of such a grim scenario? First, proponents do not believe such a succession of events as described above would happen if such legislation were to be passed. And, short of totalitarian revolution in the United States, they are right. But the point is that a totalitarian revolution is what would be required for comparable worth legislation to truly be effective. Anything less coercive would give the market enough leeway to effectively repeal such an antimarket law, at least in part.
Second, and more important, the urge to use government as a way to gain at the expense of someone else runs deep among us. And, as Robert McCormick and Robert Tollison have written, the effective role of government in our society is to transfer wealth, and to do it by force. To further understand what comparable worth proponents want, then, we must examine possible wealth transfers that are inherent in their proposals.
Winners and Losers
Who, then, would benefit and who would be hurt? According to comparable pay advocates, the job categories in which workers might benefit would include service-oriented occupations such as teaching, secretarial skills, nursing, bookkeeping and the like as well as others such as librarians. If, by law, pay scales in those occupations were significantly raised, the raises could be financed in a number of ways. First, in the case of positions in government services (and many of the occupational areas under the comparable worth umbrella fall into the government category), taxes could be raised. If tax increases were not a viable option, then government officials could slash the pay rates for other workers, such as public works crews, administrative assistants and/or cut their own pay. One does not have to be particularly politically astute to see the potential problems that would arise from this option; simply put, people want wealth transferred to, not away from them.
The final option would be to raise the pay of some workers in a particular category—at the expense of other workers in that same field, a practice that is common in unionized industries. Therefore, experienced or entrenched workers would benefit at the expense of employees with less seniority or experience. At the same time, entry-level positions in those areas would become more scarce, thereby depriving persons interested in that field a chance for employment.
This option hardly seems “fair” to those who are not in a position of seniority, but it is the most viable and surely would be the avenue that would be taken by both government and the private sector should such legislation pass. Thus, in the end, comparable worth legislation, which has been designed to help raise the pay and work status of women, would serve to lessen employment opportunities for women, especially those on the lower economic scale. Unskilled or semi-skilled workers would be hurt, and well-educated, politically-connected workers would benefit.
We can see, then, that comparable worth is not really a mechanism that would create social justice but rather is yet another transfer scheme that would serve to help a privileged fewat the expense of the less-privileged many. Its impact would be negative, as has been demonstrated.
The market has been shown to give women far more choice than would be allowed under a system based on coercion. And, as the shift in jobs has shown us in the last 10 years, op portunities for women to work in higher-paying and fulfilling occupations have grown and will continue to grow. Government can best foster that growth by keeping its hands as far from the labor market as possible.