Obama flunks Econ 101

[Tiger in Spain 0]

Obama flunks Econ 101

NEW YORK (Fortune) -- It's baaaack!! Yes, "comparable worth," which faded out around the same time the Bay City Rollers were disbanding, is making a comeback, under the euphemism "pay equity". To wit: the Fair Pay Act of 2007. Introduced by Tom Harkin (D-Iowa) in April (Illionois Sen. and Democratic presidential hopeful Barack Obama is one of 15 co-sponsors) the Act notes the existence of wage differentials between men and women. This is true; according to the Bureau of Labor Statistics, in 2005 female full-time wage and salary workers made 81% of what men did; (click here on "women's earnings" in PDF). What is more dubious, though, is the assumption that is the heart of the Fair Pay Act: that discrimination is the reason for all or most of the difference. And the act's remedies are absurdly misguided, injecting the federal government into the most routine pay decisions.

Granted, Obama did not write the bill, but he did sign on to it - the only presidential wannabe of either party to do so. Obama is a serious man and a serious candidate who presumably did not go out of his way to associate himself with this legislation in a burst of whimsy. But the Fair Pay Act, despite its anodyne title (who's against fair pay?) is the result of profoundly unserious economic thinking. That Obama put his name to it has to give pause.

Let's start with the dubious. To the Fair Pay Act's backers, the simple fact that women make 81% of men's full-time earnings is in and of itself proof of discrimination, past and present. Only a pig-headed sexist would argue otherwise. Or maybe not. June O'Neill, a certifiably female economist who served as director of the Congressional Budget Office under President Clinton, wrote a peer-reviewed paper for the American Economic Review (May 2003), trying to account for the pay gap. What she found was that women are much more likely over the course of their lives to cut back their hours or quit work altogether than men.

More precisely, of women aged 25-44 with young children, more than a third were out of the labor force; of those women who did have jobs, 30% worked part-time. (The comparable numbers for men were 4% out of the labor force and 2% working part-time). All told, women are more than twice as likely to work part-time as men and over the course of their lifetimes, work outside the home for 40% fewer years than men. That accounts for a significant chunk of the pay gap. Then there is a more subtle factor. Despite the many advances the women's movement has brought the U.S., what it hasn't done, thank heavens, is make men and women the same. The simple fact is - and there is nothing nasty or conspiratorial about it - the sexes continue to choose different avenues of study and different types of jobs.

Here's an illustrative example...

(snip)

The premise of the Fair Pay Act is that it is the duty of government to decide what a job is worth; but value is something that a free market is brilliant at apportioning. First-year chemical engineers make $60,000 because that is what their employers have to pay in order to win their services. Libraries can get excellent new staff for less. Librarians, male and female alike, know this; they may wish it were different but unequal is not the same thing as unfair.

The labor market is not perfect, which is why there are such things as anti-discrimination laws and safety regulations. But there is nothing so wrong with it that the federal government needs to wade in, classify every single job for every company with more than 25 employees, and then assume the right to micro-manage every decision over pay. It's hard to overstate just how radical a policy this is: replacing a well-functioning system that is regarded as a source of U.S. competitive advantage with statist, centralized, bureaucratized mechanism of a kind more familiar to, say, East Germany in the 1980s than to the 21st century American private sector.

The Fair Pay Act is, in short, madness. And it is troubling that Obama has associated himself with this kind of legislation - a position that has the feel of a pander to the feminist left. It is certainly not sound economics.

(snip)

More socialism