Democrats Want to Close the "Gender Pay Gap." Here Are 4 Ways Their Proposal Would Backfire.

COMMENTARY Jobs and Labor

Democrats Want to Close the "Gender Pay Gap." Here Are 4 Ways Their Proposal Would Backfire.

Jan 31st, 2019 5 min read
COMMENTARY BY
Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
Discrimination does not account for most of the difference in pay between men and women. Ezra Bailey/Getty Images

If a woman performs the same job as a man, she should receive the same pay. That’s common sense.

The same goes for people with white skin and brown skin, or red hair or blonde hair, or green eyes, and so on. 

Pay should be based on one thing alone: the work performed. Period. 

This is exactly what happens in a well-functioning market, because employers who engage in pay discrimination will end up losing their underpaid workers to other companies, resulting in their own loss of productivity and profits. 

Nevertheless, raw statistics show that the average woman makes about 80 cents on the dollar compared to the average man. 

That’s enough for many on the left to cry foul. What they miss, however, is that discrimination doesn’t account for most of that difference.

All but about 5 to 7 cents of the so-called gender pay gap can be explained by differences such as education, choice of occupation, and hours spent at work. The remaining few cents can be explained, at least in part, by unmeasured factors like forgoing higher pay for more flexible work schedules and higher benefit packages.

There is already clear evidence that anti-pay gap policies will not change these factors. 

A recent economic study from Harvard University looked at workers who performed the exact same job in a unionized environment that had rigid pay scales prohibiting gender-based pay discrimination. The study still found an 11-cent pay gap. That gap was due entirely to women choosing to work fewer overtime hours than men and choosing to take more unpaid leave.

But some policymakers don’t seem to care as much about the choices women and men make. Instead, they just want to force equal outcomes regardless of choice. Their latest effort is a bill called the Paycheck Fairness Act

A Completely Unnecessary Bill

Both Title VII of the 1964 Civil Rights Act and the Equal Pay Act of 1963 already prohibit sex discrimination in the workplace. 

The Paycheck Fairness Act would go beyond that and make virtually any difference in pay between a male and female employee—including those justified by factors like education, experience, and hours of work—grounds for a lawsuit. 

And you’d better believe the lawsuits will increase. The bill would impose new pay-reporting requirements for federal contractors and would allow the Equal Employment Opportunity Commission to collect and analyze private companies’ pay data—a field day for trial attorneys.

The bill would also remove the current $300,000 limit on compensatory and punitive damages, and would automatically include workers in class-action lawsuits unless they proactively opt-out. All of this would turn gender-based discrimination lawsuits into “jackpot justice” for eager lawyers. 

Proponents of this bill say they’re fighting for fairness and for the welfare of women, yet the bill would have stark consequences for women, as well as men, businesses, and the economy as a whole. 

Here are four of the bill’s most negative consequences: 

1. One-size-fits-all jobs

It’s a proven fact that women, overall, value flexibility in their jobs much more than men, and men value higher pay more than women. 

This means men and women choose different work arrangements that fit their respective desires. Women are more likely to seek out flexible schedules, remote work options, and unscheduled leave, which can benefit workers and employers alike—and they are often willing to accept lower pay in exchange for more flexible or alternative work arrangements. Men do this too, just at a lesser rate.

The Paycheck Fairness Act would take those flexible options away. By threatening employers with costly lawsuits, it would force employers to offer one-size-fits-all jobs that don’t meet the needs and desires of many workers, especially those of women.  

2. Lower overall wages

When you mandate equality in wages, it’s likely you’ll achieve that equality not by lifting up wages for the lower earner, but by suppressing wages for the higher earner. Evidence suggests this is exactly what the Paycheck Fairness Act would do.

Denmark has a similar law that requires employers to report pay to the government. A recent study found that while the requirement reduced the pay gap by 2 percentage points, it did so primarily by lowering men’s wages, not by raising women’s. It also lowered businesses’ overall productivity, though their bottom line remained intact, since they reduced employee wages by 2.8 percent. 

Proponents of this policy should ask: Is this really helping anyone? 

3. No more pay based on performance.  

Performance-based pay is increasingly common, and it makes perfect sense. 

When workers earn pay based on their own output, they become more productive because they are driven by an incentive to earn more. Studies have shown that average wages rise by 6 to 10 percent when companies adopt performance-based pay. 

Under the Paycheck Fairness Act this would go away. A woman would be able to sue if she did not receive the same performance-based bonus as a male colleague. She could argue that the bonus was not a “business necessity,” or that the company failed to provide her with training that would have allowed her to earn the same bonus. 

This would force uniform pay scales on all workers and would eliminate the possibility of earning a high-performance bonus or a wage increase based on performance.

4. Hurting employers and employees while benefiting trial attorneys

Lawsuits are extremely costly, and the Paycheck Fairness Act would make gender-based pay lawsuits more widespread and exponentially more expensive. 

When lawsuits occur, the result would be windfall benefits for trial attorneys, large payments for plaintiffs, and big financial hits to employers, who would have to cut costs by potentially laying off workers and cutting wages, or closing shop altogether. 

Defending against frivolous lawsuits would prove so risky that businesses would likely opt to enact uniform pay scales that would flatten employee pay and benefits, regardless of the unique contributions of individual workers. This would make businesses less productive overall and even result in less pay for workers. 

This proposal is full of unintended consequences, and would surely backfire on both women and men. Instead of trying to micromanage employers’ practices in an effort to artificially force women’s wages to match those of men’s, policymakers should focus on reducing barriers to opportunity and supporting women in the choices they make for themselves.  

Congress can do this by rolling back its extensive reach into female-dominated sectors of the economy, such as health care and elderly care, which crowds out opportunities for women-owned businesses and restricts women’s wage growth. 

Lawmakers should also let workers choose who represents them in employer-employee negotiations (ending exclusive union representation), and pass bills such as the Working Families Flexibility Act that would give workers a choice between receiving pay or paid time off in exchange for overtime hours. 

Finally, state policymakers should look to slash regulations that drive up the cost of child care. Doing so would indirectly create new work opportunities for women.

This piece originally appeared in The Daily Signal