Freeman

ARTICLE

Comparable Worth or Incomparably Worthless?

Bureaucratic Schemes to Achieve Pay Equity Don't Work

APRIL 01, 1995 by LAWRENCE W. REED

Panned a decade ago as “the looniest idea since Looney Tunes” and left to die as an idea whose time ran out before it got off the ground, “comparable worth” is making headlines again. It was raised several times in last fall’s elections by candidates who argued that it was a “fair” and “compassionate” thing for governments to adopt.

Comparable worth–known also as pay equity–is not to be confused with “equal pay for equal work,” which free markets tend to promote if there’s good reason to–namely, when all relevant factors in wage determination are identical across different labor markets. Besides, equal pay for equal work, for better or worse, is also the law of the land. Equal pay for comparable work is an entirely different animal.

Equal pay for equal work requires, for instance, that a woman be paid the same as a man, or another woman, who is doing exactly the same job. Comparable worth, by contrast, focuses on paying an entire profession or occupation the same wage as another, very different, profession or occupation determined by some outside authority to be of the same “worth” or value to an employer.

The idea is that individual workers who perform jobs of substantially comparable value to their employer should be paid similar wages. If the work done by an accountant is deemed to be as valuable to an employer as that done by a typist, for example, the law would require the two employees to earn the same wage. In Minnesota, firefighters in the city of St. Paul were ranked as having the comparable worth of the city’s librarians.

When many people seek employment in an occupation for which there is declining demand, the tendency in free markets is for wages to fall, sending a signal that people should look for a different line of work. Likewise, wages rise during a labor shortage, sending a signal that more people are needed.

A comparable worth scheme imposed on private sector employers would arbitrarily and effectively abolish the role of supply and demand in the labor market. Conditions in the market wouldn’t matter, because some authority’s “calculation” of the value of one job compared to another would take their place by force of law.

Employers and employees can always produce “experts” who will rank jobs differently than any arbitrary formula, which is why imposing comparable worth would produce a playground for lawyers and a bottomless pit of costly litigation. It rests on the dubious notion that the relative worth of different jobs can be mystically divined and distilled into a cookbook recipe by “experts” who aren’t even in the kitchen.

Advocates usually tout comparable worth as a tool to end discrimination against women in the workplace. They see wages in female-dominated occupations lower than wages in male-dominated occupations and assume that the disparity is entirely caused by discrimination. However, many rational factors explain the disparity.

Men, for instance, do not leave their jobs to have children and are less likely than women to leave their jobs to care for children. Men are less likely to move if their spouses must relocate for professional reasons. Men are usually physically stronger than women and tend to work in jobs that have a higher probability of physical harm. (Men, in fact, account for 94 percent of the occupational fatalities each year.) Differentials between the pay of men and women exist because women entering the work force generally have less education and fewer skills and are higher risks for employers than their male counterparts.

The National Committee on Pay Equity claims that women earn only 71 cents for every dollar men earn. Not only does that often-quoted figure ignore the factors cited above, it doesn’t even take into account the number of hours or weeks that workers put in. Women, for many reasons, work fewer hours a week and fewer weeks a year than men do.

If employers were guilty of wage discrimination against women for no reason other than stupidity or the desire to be nasty to the opposite sex, then studies would show that female employers pay their female employees more than male employers pay their female employees for equally productive work. There are thousands of women who own and manage businesses and to my knowledge, they pay market wages just like their male counterparts do,

What happens when an employer decides to pay a worker less than the market wage? That worker soon leaves, gets hired away, or goes into the business himself (or herself).

High turnover boosts the employer’s training and transition costs, which can quickly make that “cheap” employee a very expensive one. In free markets, the employer must heed the signals of supply and demand or see the competition benefit from his shortsightedness. These days, labor is highly mobile and information travels faster than ever before, so markets work better and quicker to bring about fairness and efficiency than their critics are willing to admit.

Some comparable worth advocates unwilling to overturn supply and demand in the private sector have focused instead on putting it in place in the public sector. In 1984, Minnesota became the first (and so far, the only) state to mandate that all local units of government devise and implement comparable worth schemes. St. Paul is a city whose experience with the law typifies that of local government across the state: $32 million in additional salary expense between 1985 and 1992, endless disputes about who is comparable to whom, and lingering uncertainty if the city is even in compliance with the law at all.

In his authoritative 1993 book, Incomparable Worth, University of Virginia economist Steven E. Rhoads showed that after depressing the wages of computer specialists and nurses in order to achieve “pay equity,” Minnesota localities can’t find people willing to take those jobs. Women, according to Rhoads’ findings, are not clear winners when labor markets are distorted and wages are set by politics and politicians.

The last thing this country or any of its states need is another expensive mandate that substitutes the judgment of bureaucrats for that of the marketplace. Comparable worth—a silly and artificial invasion of free association between participants in the labor market–is incomparably worthless.

ASSOCIATED ISSUE

April 1995

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

comments powered by Disqus

EMAIL UPDATES

* indicates required

CURRENT ISSUE

November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION