Pay Equity: Both Sides Now

In the Pay Equity area of compensation one encounters HR, compensation and ideological arguments for and against pay equity interventions. Admittedly, teasing out causality in gender based pay gaps from covariants such as education, age and race is never straight forward, but some of the major positions against pay equity interventions seem consistent over time. Here are a few and their counter-arguments.

Argument 1 Against Pay Equity Intervention:
In a democratic society, wages are set by the free labour market. Pay equity makes the price of a job dependent on subjective value judgements, depriving workers and employers alike of the freedom to decide how much labour is worth.

This argument is based on the theoretical model of a free labour market where employers compete on an equal basis for workers and workers compete with each other for jobs. This model assumes that workers have information about and access to job opportunities, geographic mobility, the ability to upgrade their skill as required, freedom to choose whether to work or not. In such a market wages would be determined by supply and demand.

As anyone who recruits and hires personnel knows, however, there are all kinds of labour markets for all kinds of jobs. In reality, large employers in a community set their own market, and, smaller employers who are unwilling or unable do not pay the market rate. Job seekers do not have the information or options required by a free market. The idea of the free market allocating resources might be fairly strong when it comes to the purchase of foods, housing or transportation, and even for some highly specialized jobs for which there is high demand. It is highly questionable, however that the market is as free, unbiased and open to individual choice when it comes to most people making decisions about where they work and how much they will work for.

Further, you cannot assume the labour market operates the same way for men as for women. Men are not socialized into preparing for low-paying work before they enter the labour market; men are not excluded from high-paying work once they are in the market; and men are not directed into a restricted set of occupations. The value of labour may be its price in a free market, but women are not part of a free market. For women, the labour market is segmented, with women directed to the secondary segment, hired into lower-paying jobs while equally qualified men are hired into high paying jobs with greater opportunities for advancement. How many men have been excluded from apprenticeship and on-the-job training because of gender? How many men have been refused consideration for promotion to supervisory or managerial positions because of gender? How many men with years of experience have trained a newly hired woman and six months later seen that woman preferred for promotion? Women may participate in a competitive labour market, but their competitors are other women and the jobs for which women compete are artificially limited. The price of women’s labour is not the result of supply and demand but of bloated supply and strangled demand.

In reality, then, there is not a single free labour market but a segregated or dual labour market. Access to the highest paying jobs is limited to men because women lack information, mobility and the necessary training because of socialization and discrimination. In a dual labour market, employers can pay women less than their true value to the firm, and women are not wooed away by hypothetical non discriminatory employers. The result is that the market does not punish discriminatory employers, despite what economic theory dictates.

Argument 2 Against Pay Equity Intervention:
If the labour market is operating imperfectly with respect to certain jobs, the answer is not to subvert the market but to correct the imperfection through Employment Equity initiatives. Even if there is a certain amount of systemic discrimination in the labour market, why should an innocent employer pay for discrimination over which the firm has no control?

Employment Equity is a necessary but insufficient remedy because it does not benefit women who are already in the labour force and who are being underpaid. At best, only entry level jobs are truly part of the labour market. Internal promotions are immune to the forces of supply and demand because the only demand comes from within the firm and the only supply is current employees. Employment equity only benefits new entrants into the firm.

Argument 3 Against Pay Equity Intervention:
Job evaluation does not establish the worth of jobs but only approximates the market value of a job. A job has no inherent worth, but only a market value. Job evaluation should not be used as a substitute for the labour market.

While job evaluation may not reveal the absolute value of jobs, it does reveal the relative worth of jobs to the organization. In the past, job evaluation was not used correctly and systematically undervalued women’s work. This does make it a matter of rights versus interests because the undervaluing was the result of built-in prejudice.

Argument 4 Against Pay Equity Intervention:
Setting wages through Pay Equity is an inefficient allocation of resources and will eventually require that government regulates pay across the board. Further, pay equity is a matter of interests not rights. Women simply want more money for the work that they do. This is likely true of any other group in society. As long as women are free to become computer engineers and choose to become admin assistants, they have no right to demand engineer’s pay for admin assistant work.

Pay Equity will not lead the government to price and allocate labour. Once the value of women’s work is fairly determined, the market should once again be used to set wages. Until the market is corrected for gender discrimination it cannot be used as a legitimate reference point.

Pay equity is no different from 19th century American abolition movement, which sought to better black’s position in society. The important question is the justice of the effort. Women ask only to be paid what they contribute to a firm. To extent that they are paid less than they are worth, who can deny that they are being exploited? Ending exploitation cannot be painless, and those who now benefit the most from it are likely to cry the loudest about its end. If righting a wrong has some undesirable side effects (e.g., increased inflation) the answer is not to ignore the wrong but to remedy the side effects equitably.

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