While the U.S. is losing thousands of jobs every day, it might seem odd that Congress is making it tougher for companies to hire people in the U.S. This New York Times story covers the fact that it will now be possible for someone to sue a company 20 or 30 years after they were hired, on the grounds that the person who hired them (who may be dead by the this time, and thus unavailable to testify) paid them less money than a person of another sex or a difference race. If you’re an employer, how do you budget for this liability? How do you account for it in your pension fund, given that once 20 years of pay are adjusted the pension fund will need to be beefed up to pay out a higher pension based on the revised salary. It sounds at first as though we’re rearranging the deck chairs on the Titanic. In a nation where everyone is unemployed we’re going to argue about how much people should have been paid back in 1979 when they had jobs. (Only from the perspective of 2009 does 1979 look like it might have been a good year for the economy!)
The effect on young people would appear to be especially pernicious. The people who have the best chance of arguing that they were discriminated against are in their 50s and 60s (Lilly Ledbetter, the plaintiff for whom the bill is named, was hired by Goodyear in 1979 and retired in 1998). As the U.S. economy shrinks, the pool of available money to pay wages shrinks. If more of the money is given to oldsters and their attorneys, less money will be available to 22-year-olds starting their careers.
An economist would tell you that pay discrimination laws aren’t necessary in a free market. A company that was underpaying women, for example, would find that its skilled women had quit to work for a competitor. If women in all sectors of the economy were underpaid, a company could make tremendous profits with little risk simply by hiring an all-female workforce and entering markets where most firms had a mixed or all-male workforce.
Perhaps Congress is smarter than it would be appear at first glance. Employers who aren’t subject to the market can do whatever they want and many of the most egregious cases of pay discrimination have been at monopolies such as the old telephone company and at government agencies. Looking at where the jobs are right now and where we are going, the U.S. is no longer a market economy. By the time we’re done with layoffs and stimulus, at least 40 percent of the economy will be government (federal, state, local). 16 percent of the economy is health care (overlaps with the preceding 40 percent), which does not behave according to the free market, and something like 7 percent is Wall Street, recently nationalized in all but name (and upside). A school district can pay its workers whatever it wants to and however it wants to; parents have no choice but to continue to pay property taxes and send their children to the local school. A hospital can pay doctors more or nurses less and still get its Medicare and Medicaid funds. A Wall Street firm can hand out bonuses to the (mostly male?) managers who drove it into insolvency because there are always more TARP funds available.
A 22-year-old who is lucky enough to find a job in the land of his or her birth will most likely find it in the non-market portion of the U.S. economy. If present trends continue, a child born today who remains in the U.S. is virtually certain to work for the government, in government-sponsored health care, or at a government-guaranteed financial firm. Thus the new bill may not be as simple as the “old folks and plaintiff’s lawyers continue to grab everything that isn’t nailed down”.
Philip,
You say:
“…pay discrimination laws aren’t necessary in a free market. A company that was underpaying women, for example, would find that its skilled women had quit to work for a competitor. If women in all sectors of the economy were underpaid, a company could make tremendous profits with little risk simply by hiring an all-female workforce and entering markets where most firms had a mixed or all-male workforce.”
This is provably wrong. The fact of this case that the bill is named for is the proof. Note that you’re assuming that the market is completely free in the technical economic sense. This not true. The economics 101 definition of a free market is like the physicists friction free world. It’s an idea used for pedagogic and thought-experiment purposes. Most all of economics after econ 101 is the study of how the real world differs from this ideal free market.
Malcom: The fact that one jury agreed with Ledbetter’s attorney does not prove that pay discrimination against women existed, even in 1979. It only proves that one jury agreed with her lawyer.
Obviously the free market is an abstract concept and no real-world market can meet all of the requirements. Goodyear in 1979 may have been protected by tariffs or import quotas. The capital requirements might have been so large for entering the tire market that the incumbents were protected by their very size. Goodyear might have been colluding with the other major manufacturers to avoid serious price competition (the way that breakfast cereal companies have managed to keep profits high, for example).
The deeper problem with this kind of lawsuit is human nature. Most people tend to overvalue their accomplishments in a work or domestic environment. The husband observes 100 percent of the things that he did but perhaps only 15% of the wife’s activities in support of the household (since he is not observing her all of the time). Even if the wife is doing 4 times as much as the husband, he will believe that he is doing more than she. And he is right, at least as far as what he has directly observed. If I work at a job, most of the time I can only see what I am doing. The other people in the office might be goofing off 90 percent of the time. How come I’m not paid 10X as much as them if I do 10X as much observable work? Perhaps it is due to my skin color or sex. Let me call a lawyer now…
There will always be bad decisions by juries (I’m not saying this is one because I haven’t seen all the details). However the argument is really about the statute of limitations, not the crime itself. It is crazy to think that evidence of pay discrimination will always crop up in 180 days. Under the old law it would be prudent to file a lawsuit as soon as you were hired, just in case there was a case. Then you could gather the evidence.
People will still need to prove to the court that a crime was committed. I don’t see the issue here.
If your issue is with fair pay laws, then that is another issue all together.
As humans become more civilize and interconnected, work becomes a “job” instead of “for survival”. As a result, we begun to goof off, and over value our own “work”. In effect we start to look for blames elsewhere instead of once own self, when we don’t measure up to our next door neighbored.
The very idea of pay discrimination as a source of injustice strikes me as an odd concept.
How does injustice arise when a person chooses, of their own free will, to accept an employer’s valuation of their time and effort? Or is the employer accepting the employee’s valuation of their own time? It’s “both”, right? In free countries, how is it anything but an entirely voluntary bidirectional transaction?
In my mind, the slate is wiped clean every time a paycheck is cashed. Put another way, employees decide, on a continuous basis, what their time is worth. If the employer agrees with that valuation, the employee is retained. So who should be blamed for any undervaluation? The answer, to me, is quite plain.
I entirely agree with chris. If it were not so, couldn’t you carry the discrimination argument even further and apply it in reverse? For example, rather than an employee finding out that they weren’t paid enough (and a jury agreeing with them), why couldn’t a corporation find out that they may have ,in fact, paid an employee too much, and then demand some back?
Perhaps Merrill Lynch might want to look into something like this.
While I don’t agree with the equal-pay laws for some of the reasons you say, it is not true that a free market would solve this problem in the way you describe.
Because the prejudiced employers are underpaying a particular class of workers, the enlightened employers don’t need to pay them full pay, just a bit more than the prejudiced employers. They have no reason to pay more than they need to do do this. If the supply of their jobs was without limit, it would balance, but it’s not. And while these employers will get superior employees for less money, that alone does not assure their ability to defeat the employers who are getting the inferior portion of the group for even less money. One might still get appropriate relative value for money.
The main thing the prejudice does is reduce overall payment made for the product, say “women’s work” and thus the average too.
Brad: I don’t think that classical economics allows the “prejudiced employer” that you posit to stay in business. If the prejudice employer offers a woman 0.6X what she is worth and the enlightened one offers her 0.7X, no woman would work for the prejudiced employer. The enlightened employer would have an all-female workforce with 30% less labor cost than the prejudiced employer’s all-male workforce. This would put the prejudiced employer out of business (unless the prejudiced employer were a government agency, regulated monopoly, or somehow else shielded from the market).
[I don’t think that the free market in labor is a complete abstraction. As I pointed out in http://philip.greenspun.com/careers/women-in-science , there is no shortage of women in high-paying high-security high-flexibility medical careers. At the same time, various geniuses in government and academia conduct studies of why there aren’t more women who want to pursue low-paying, insecure, inflexible academic careers.]
I asked our VP Operations, a recovering lawyer, to review the bill. His response: “The suit has to be brought within 180 days of the last discriminatory paycheck received and can only be for the preceding 2 years.
The Supreme Court had ruled that it must be brought within 180 days of the “first” paycheck that was discriminatory.
The Ledbetter bill starts the clock from the last paycheck instead of the first.
So, there will not be any 20-30 year old suits.”
David: Thanks for that! It was impossible to get this from the press coverage. It sounded like people could reach back for a whole lifetime of increased salary. Still, every new government regulation and possible cause of action makes it tougher to do business in the U.S. You offer someone a job, they are happy to take the salary, they work for you for two years, quit because their spouse needs to move, and then sue you because they’ve now decided that you paid someone of another sex more to do a similar-sounding job. How many more regulations can we lay on American employers before it becomes impractical for a smaller company to hire anyone at all (the big companies are better able to spread the cost of the teams of lawyers required to study new regulations)?