In 1963, an Equal Pay Act was passed under President Kennedy, but proponents argue that it has not succeeded in closing the wage gap, so a new law has been proposed -- the Paycheck Fairness Act -- which is supposed to put teeth into the original legislation. What most people should understand, but don't, is that the very concept of "equal pay for equal work" is wrong both morally and economically. The original law, passed in 1963, should be repealed instead of strengthened and updated. The so-called wage gap that the legislation is intended to address is a smokescreen that fails to recognize the very real differences in performance that serve to explain the differences in pay.
The following figures are often quoted as a justification for the legislation: "According to the U.S. Census Bureau, in 2013, women who worked full time earned, on average, only 78 cents for every dollar men earned. The figures are even worse for women of color. African American women earned only approximately 64 cents and Latinas only 56 cents for each dollar earned by a white male." (From an ACLU advocacy group) Obviously, these figures are simply group averages and say nothing about whether the groups performed exactly the same work, or were equally as productive. So they give a presumptuous and misleading picture of these differences in pay by suggesting that they're due to discrimination.
Moreover, does the catch phrase "equal pay for equal work" even mean what it says? The answer is no, because what it really means is equal pay for unequal work. How so? Well, imagine two workers doing the same job, but one is more productive than the other. Are they doing equal work? No, because they are not equally productive. However, since they’re doing the same kind of work, the “equal-pay-for-equal-work" principle says that they must be paid the same wage. What will be the result of this principle if it is fully and successfully enforced?
George Reisman gives the following example: “Imagine 2 workers one of whom produces 10 units while the other produces only 9. Which one will be employed if their pay must be equal? If a less productive worker must be paid the same as a more productive one, he will be unemployed if a more productive worker is available. For less productive workers to avoid unemployment, their wages need to be less than the wages of more productive workers. Lower wages offset lower productivity. If the wages of the less productive are sufficiently lower, they can out compete the more productive. Requiring equal pay for unequal work is the enemy of less productive people. It deprives them of the ability to compete.
“If women were paid less than men for the exact same work [i.e., for the same productivity], then hiring only women would maximally increase profits.” It would increase profits to the point that there was no clear difference between the wages of men and women for the same work. The wages of women would be bid up as employers competed for their less expensive labor while the wages of men were bid down until there was no obvious difference between the two forms of labor.
The misnamed “equal-pay-for-equal-work” principle would make wage competition for the same job impossible, because it would prevent workers from competing for a job by being willing to work for lower pay than their competitors.
Moreover, imagine the effect of such a principle if it were extended from prices for services to prices for goods. And why shouldn’t it? If it’s valid for the one, it’s valid for the other. In that case, businesses selling the same product would not be allowed to compete with each other by offering consumers a lower price than their competitors. Consumers would have to pay the same prices for the same products on the premise of "equal pay for equal goods."
The principle of "equal pay for equal goods and services" is a bad idea, as it would prohibit competition among businesses and workers and destroy incentives for improved productivity and economic efficiency. It would also prevent consumers and businesses from benefiting from the lower prices that such competition makes possible.
Last, but not least, it would destroy economic freedom.
(Edited by William Dwyer on 5/29, 1:42am)