Are Women Underpaid?

April 23, 2007

An article in today’s Detroit Free Press informs us that our bureaucrats in Lansing are proposing four bills for equal pay legislation, that would make it a crime to pay a woman less than a man, provided they’re equally qualified, for the same job. Of course, evaluating talent and qualifications of any prospective employee, regardless of gender, is a very subjective task. The article does not indicate, nor do I imagine the bills stipulate, how such merit is to be objectively quantified.

But this doesn’t really matter. What does matter though, is the very real cost of such legislation, to society in general. Defending lawsuits alleging gender-based pay discrimination would probably be quite expensive. As a result, some women would probably be paid more than they are actual worth, in terms of marginal product. The consequence of this, however, is that the cost of hiring and keeping a woman on payroll would be greatly increased. This is what is “seen,” in the sense that some women will undoubtedly benefit financially from such measures. But what is “unseen,” is that many other women would probably see their opportunities for work diminished, just as minimum wage legislation has disproportionate effects on the elderly, minorities, and unskilled or low-skilled workers.

Do women earn less than men? Sure, most studies tend to verify this adage. But does this matter?

I posted the following comment on the article’s message board:

Because labor is, to some extent, commoditized, we would expect something like the “efficient markets” to come in to play. If women are systematically being underpaid, any sound theory of entrepreneurship suggests that somebody, somewhere, will recognize this, and will make a fortune by head-hunting the allegedly “underpaid” women, by offering a better compensation package than they’re currently earning. The theory of efficient markets does not require that all entrepreneurs recognize an arbitrage opportunity, only that somebody recognize it.

We should expect to see venture capitalists piling money into firms run & operated primarily by women, earning spectacular profits in the process. That we do not, I submit, is strong evidence that such “unfair” gender discrimination does not really exist.


Posted in: Economic Fallacies, localized, Seen and Unseen, Women's Studies 101

Comments

2 Comments so far

  1. trav.is April 24, 2007 1:47 am

    It’s remarkable how quick politicians are to disqualify the notion that pay differences may be a natural result of womens’ choice.

    Women make choices that interrupt their careers more than men - marriage, bearing children, and raising children. This either causes a later entry into the higher paying levels.

    Men spend about 2 years away from work on average. Women up to 6 times longer. 12 years of seniority building leads to different pay.

    It’s not unfair. It’s a choice.

    The women making as much or more than their male counterparts aren’t crying to the government. They’re busy running companies.

    David Z: Equal qualification, therefore, is not a proxy for equal potential…

  2. Geek April 24, 2007 9:19 am

    I just started brushing up on my economics and I’m enjoying Bastiat.

    Of course, when it comes to “equally qualified”, who gets to decide what that means and what circumstances that covers and doesn’t cover.

    Then we move from Bastiat to Kip’s Law. :)

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