September 20, 2000

September 20, 2000 | Commentary on Taxes

Fixing the 'Wage Gap'

There's something significant being overlooked in Vice President Al Gore's economic plan. Buried beneath the usual political rhetoric about fiscal responsibility and targeted tax cuts is a radical proposal that would give government bureaucrats unprecedented power to determine a "fair" wage for American workers.

It centers on the supposed "wage gap" between men and women. Because the typical woman earns 73 percent of what the typical man earns, the vice president claims that employers are discriminating against women. To fix the problem, he proposes the federal government slap heavy fines on offending businesses and make it easier for lawyers to sue them.

The vice president clearly hopes this plan will appeal to those who believe in fairness. But there are three fundamental problems with his approach-mistakes that illustrate why the plan has nothing to do with "equal pay for equal work" and why it could actually wreak havoc with the American economy.

First, the vice president is misinterpreting the data on wages. Male workers and female workers cannot be compared so easily. Men choose higher-paying professions. They have more education, and they tend to be more experienced. Most importantly, they also work more.

In her recent book, lawyer-turned-journalist Laura Ingraham explains: "Men take time-outs from employment for less than 2 percent of their working lives, compared to 15 percent for the average working woman. … If you suspend and restart your career a lot, you're just not going to have the same pay vector, whether you're a man or a woman. Even full-time women workers typically put in eight to 10 hours a week less than men do."

Second, the vice president assumes business owners are so determined to discriminate that they are willing to deliberately sacrifice profits by hiring higher-paid men when they could hire equally capable women for less cost. This is a rather novel theory, particularly coming from someone who often accuses private businesses of being greedy and profit-driven.

But, for the sake of argument, let's assume he's right: Employers are engaged in a silent conspiracy to forego profits by discriminating. For this bizarre scheme to work, investors have to be in on the plot as well. After all, if there is systematic discrimination, new companies could be started that would undercut existing firms by hiring women to produce the same goods and services for lower cost-and they would have to be stopped to keep the system working.

Needless to say, this conspiracy theory is preposterous. Yes, some employers do discriminate in their hiring, and they certainly deserve our scorn, but there's no evidence of an economy-wide plot to oppress female workers.

The final shortcoming of the Gore plan is the actual proposal, which-despite media claims to the contrary-is not about enforcing equal pay for equal work. There are already laws on the books to prevent businesses from giving different wages to male and female workers. A bank, for instance, cannot have one pay grade for male tellers and another pay grade for female tellers. Nor can a hardware store pay higher wages to its male cashiers.

So if the proposal is not about equal pay for equal work, what's it about? In reality, it's about giving bureaucrats at the Department of Labor the power to decide the "fair" wage for each type of job. They would do this by rating each job-comparing, for instance, what they think janitors should be paid to what steelworkers and computer company executives make. They would then determine whether the real-world wage level for "female-dominated" jobs is below what they consider the "fair" wage level to be.

This is where the proposal becomes dangerous. Once government officials classify a certain type of job as underpaid, they can unleash a torrent of legal troubles on employers in that field. And the possibility of government harassment and fines is only the beginning: More worrisome is the prospect of trial lawyers using the government's make-believe numbers to sue companies-or even entire industries-because they are supposedly discriminating.

It is no exaggeration to say that market-based prices are the backbone of a free-market economy. Prices perform a critical role in the economy, signaling to savers, investors, workers, and consumers how to produce and consume most efficiently. Replacing this market mechanism with government price-fixing of wages is a sure-fire way to undermine America's economic leadership and-ironically-set back the cause of true equality.

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Daniel J. Mitchell is the McKenna senior fellow in political economy at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy

Related Issues: Taxes

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