Veronique de Rugy on the Gender Pay Gap
2019-06-17 · Guest: Veronique de Rugy (Senior Research Fellow at the Mercatus Center) · 52:03
Reality and myths of the gender pay gap
Bob Zadek and Veronique de Rugy discuss the reality and myths surrounding the gender pay gap. They argue that while a raw statistical gap exists, it largely disappears when controlling for job choice, hours worked, and temporal flexibility, and that government mandates for fringe benefits often inadvertently lower women’s cash wages.
Topics: Gender Pay Gap, Equal Pay for Equal Work, Labor Economics, Mandated Benefits, Paid Leave, Free Market, Kamala Harris, Employment Law
Speakers:
- Bob Zadek - Host
- Veronique de Rugy - Senior Research Fellow at the Mercatus Center
Introduction to the Gender Pay Gap [00:17]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. Thanks so much for listening this summer—soon to be summer—Sunday morning.
Since 1963, it has been illegal in our country to pay women less than men for the same work. It has been illegal. So, we passed—we detected what may have been a problem, we the country passed a law, case closed. Uh-oh, not so fast. Case is not closed.
During this election cycle and in the immediate past, our country has been on a bit of a scavenger hunt. We are looking for—we the political class is looking for—suitable recipients to whom to transfer the wealth of other members of American economic life. And we are on this hunt: to whom can we garner votes by transferring money to them? Well, let’s see. Perhaps renters are in need of wealth transfer from landlords. Hmm, let’s just transfer a bunch of wealth—that was the subject of a show a couple of weeks ago. Hmm, what about reparations for slavery 300 or 200 years ago? Let’s transfer wealth to people who may have been descendants of slaves from people who may have been descendants of slave owners. Okay.
Hmm, how about women? That’s a big voting class. Let’s buy a bunch of votes by passing a statute that will transfer wealth from other workers—male workers and indeed some other women workers—to women. So we have to first detect a reason for the wealth transfer, and then we can effect legislation to transfer the wealth. And the reason is the gender pay gap.
It is assumed by some in this country that women are just wrongfully, for reasons of anti-woman bias in the workplace, women are simply paid less for the same work. In other words, employers are ignoring the pressures of the marketplace, are doing what is not good for their company, but they are satisfying some internal need to harm women and they are paying women less.
This morning’s show, I’d like to examine: is there a gender pay gap to begin with, or is that manufactured as the political cover to transfer wealth from one group to another? If there is a gender pay gap, what causes the gender pay gap? And if there is a gender pay gap and we have discovered the cause, what is the best way, assuming there is one, to fix it?
Of course, in solving a problem such as this, I thought it would be sensible to have an expert on the area of the gender pay gap, on economics in general, a free-market economist. And with that introduction, I’m happy to welcome to the show Veronique de Rugy. Veronique is a senior research fellow at the Mercatus Center at George Mason University—my favorite economic think tank in the country, I should mention. She writes a weekly opinion column for the Creators Syndicate, she writes regularly for my favorite magazine, Reason magazine, and she blogs about economics at National Review Online—another must-read. She was a resident fellow at the American Enterprise Institute, she was a policy analyst at Cato, and a research fellow at the Atlas Economic Research Foundation. My goodness, what incredible creds. With that, I welcome Veronique to the show. Veronique, good morning.
Veronique de Rugy: Good morning to you, and thank you for having me.
Defining the Gap: Median vs. Equal Work [04:54]
Bob Zadek: Oh sure, it’s my pleasure and it’s the audience’s pleasure to be sure. Veronique, is there in this country a gender pay gap? Now, let’s just define terms so we don’t get off into the weeds. A gender pay gap, as I use the phrase and as we will use it together on the show, a gender pay gap is a decision by an employer—an irrational decision, I should say—but a decision by an employer to pay a woman less than a male for doing the, I’ll say, exact same work. Is there a gender pay gap in this country today as Kamala Harris and Elizabeth Warren and others seem to indicate?
Veronique de Rugy: Uh, I think—I mean, you hit the nail on the head when you said let’s define the terms, because if you define it like this, the answer is no. But the reason why there’s so much outrage is because actually people go around actually really defining it and looking at comparing equal work and—sorry, to comparing the pay of women and men while they’re doing exactly equal work at equal level of education and so on and so forth.
And the reason why there’s this outrage is effectively what people are doing is that they are taking the—um, the—uh, they’re taking everyone who works 35 hours or more a week for the full year, and they find the median for women. So basically it’s like it’s the point, this wage where there’s 50% of women above who make above this and 50% of women who make underneath this, and they do the same thing for the men and they compare those two things.
And however, those—if you compare this, you’re actually not comparing at all what you talked about. And when you do this, you get, you know, you get a number which is actually quite—quite big, which is like something like 23 cents, 24, depend on the years. So, but if you compare it correctly on—on looking at same education, same number of hours, same job, you find that actually the gap is really much, much smaller. It remains a gap, but it’s—it’s—again, it’s like probably five cents. And so the question then is: why is there still a gap?
The Impact of Government-Mandated Benefits [07:18]
Bob Zadek: So, what we have is we have statistically, women—as Veronique has explained, if you compare the exact same jobs, if you do the hard work and have statistically defendable analysis, there is a slight—Veronique will explain the degree—pay gap if you do the careful work. But if you compare in gross, if you do the sloppy, careless, lazy calculation of just take all the women in the whole country, all the men in the whole country, irrespective of how collectively women do or enter into various occupations more than men and other occupations less than men, there is such an impossibility of making apples and apples.
So that accounts for the dishonesty of the headline-grabbing calculation. But if you make the right calculation, there is still a wage disparity, although much smaller. Now, Veronique, before we get into the wage disparity, let’s discuss for a minute just because it is so—it’s the low-hanging fruit. We have employers in this country who, let us assume for the most part, they are interested in obeying the law and in making as much return for their owners as they can and having their business prosper and grow.
And it would be such bad business for an employer to pay an—to offer a prospective employee who’s a woman less than she is worth, because that woman will decline the job and somebody else will hire that woman because it is good business. So, once you assume a gender pay gap, as Kamala Harris, Elizabeth Warren, and many others do—Bernie Sanders, perhaps—once you assume that, you have to assume that employers have no idea what they’re doing and have no concept about how to make a profit. Isn’t that the inevitable conclusion once you assume a wage—a gender gap?
Veronique de Rugy: Right. So that’s one of the—of the—of the assumptions. I think another one is that businesses are out there to mistreat their employees. You get this—this idea all the time, whether you talk about the pay gap or whether you talk about overtime pay. There’s always this assumption that, you know, employers could be paying much more their employees for overtime, but they don’t do it even though they’re sitting on this big pile of cash.
So these are two—these are two of the—of the main assumptions: that business owners—business owners are up to no good, it’s somehow it’s not in their interest to treat their employees well, ever, and there is no competition somehow and basically people have no options.
Now, the truth of the matter is that there are times where it is more true than not. When the economy is—is not growing, when you’re in a recession, when there’s much less competition for employees and—and, you know, like the truth is the bargaining power is in the hand of—of employers. But it doesn’t mean that they want to actually mistreat their employees nonetheless. It just means that they have, you know, they don’t have a good reason or the means to stretch themselves to keep employees and to attract employees because they may themselves have less of a need for an employee.
I think another point that’s important to explain here is the fact that there are a lot of government interventions that in fact lead businesses to see women and to think, “You know what? This woman, for a variety of reasons—for instance, because now I have to pay paid leave, I have to—I have to pay all sorts of things—makes employing women more—more expensive,” actually leads to fewer employment for women, fewer promotion, fewer—but that’s basically a response to a government intervention. It’s not in the nature of businesses to discriminate against women just randomly.
Forced Benefits vs. Cash Wages [12:04]
Bob Zadek: So let’s just explore that a little bit further, because that is actually government-created wage discrimination between women and men. There are many state and fed—I’m sorry, go ahead, Veronique.
Veronique de Rugy: No, no, yeah, go ahead. Sorry.
Bob Zadek: There are many state and federal statutes that im—that tell employers, “We know better about how to run your HR, your human resources department, than you do. And we know it is in your best interest and in the best interest of all of your employees to have mandated maternity leave, mandated leave to take care of sick relatives, and the like.” All of these mandated benefits imposed upon a—a business, telling a business, “You must offer these fringe benefits other than wages.”
And when you do that, the cost is—most of the consumers of that fringe benefit are women, which means the cost of hiring a woman is simply greater than the cost of hiring a man. So while the employer’s out-of-pocket the same amount, the employer is forced to pay the woman not in wages, but in benefits that maybe that particular woman doesn’t want and the employer doesn’t have the money to pay. So when you include the other costs, women are paid perhaps the same, except they don’t get it in money; they get it in forced benefits that maybe they might not even want. And—and you have observed that I know quite a bit in your studies.
Veronique de Rugy: Yes. So there’s a big debate going on right now about paid leave, having a federal paid leave—uh, because we’re the only industrial country that doesn’t have one. And it’s bizarre to me when you have Republicans arguing that we should emulate policies from countries like France and Spain and Italy—countries that haven’t really been growing in—in years.
And—and the whole argument is that, you know, that this is a policy that allows women to—to take time off paid, even though they could—they can take it at least—uh, for most jobs they can take it, but for up to 12 weeks, but not necessarily with paid—with pay. And—and it’s important because it has all sorts of benefits. No one denies the benefit of paid leave. The question is whether the federal government should actually mandate it.
And—and it’s pretty interesting to actually notice, by the way, that there’s a ton of—there’s roughly 65% of women in this country that actually report getting paid leave. But what’s important about this is that when you look at—at the—the economic studies that have been done in countries and in states—by the way, there are five states that have—that have paid leave on their books. What you find is actually quite astonishing. It’s—well, it’s not surprising if you understand economics, but it’s—it’s pretty stunning when—when the real-life is—is really kind of that—as strikingly close to what the theory tells you.
And you find that women in countries that have mandated—mandated paid leave from the federal—from the—the government, they make—they make less money because, as you say, their—their—their overall compensation may not change, but their base compensation may change. It’s just this—this part of the fringe benefits grows. So they make less money, they get fewer hours, they are discriminated against in terms of getting jobs as a—you know, over—over a man. They are promoted less. The gap between the women in—in leadership position between the US and—and the rest of industrial countries is actually gigantic.
I mean, there’s all of these things that have been directly linked to all of these benefits, including paid leave, which end up leading to worse outcomes for women. So, I mean, there is such a thing—I mean, we say the road to hell is paved with good intention, and that is really—I mean, it is really true when it comes to these gender policies. So, but the reason why we got on this is that there is—there is a moment where businesses end up discriminating against women. But usually it is either because they’re bad business people—and there are very few of those, and they pay the price of it, especially during booming times like now—but that’s very rarely the explanation in a vast, vast, vast majority of cases. It is actually because the government is actually put something into law that makes it unappealing to hire women.
Bob Zadek: And it’s unappealing because the government imposes a cost upon hiring of women. Now, there’s a point that Veronique made—
Veronique de Rugy: Yeah, it makes the cost of hiring women more expensive than hiring—than hiring men.
Bob Zadek: And that’s a crucial point. Veronique, that’s a crucial point because if you focus on not what the woman receives in cash, but how much the employer pays overall for that woman employee, an employer pays more for having a woman if you add salary plus other costs than pays for a man. So in effect, a woman being employed will cost an employer more, not less, than having a male be employed.
But the problem is the woman doesn’t get to pick how that cost is paid. A woman is not given the choice: “I’ll take all salary and no paid leave, no of these other women-focused benefits,” because the woman will say, “I don’t need them, I don’t want them, I just want the salary.” But the government has mandated that a woman accept as a non-economic benefit some form of compensation, and that’s what skewers the numbers. Women are getting the same compensation; they don’t get it in cash, they get it in forced benefits they may not even want.
Veronique de Rugy: Yeah. And one of the problems is we—the government has put so many regulation in the labor market that it’s actually not possible to engage in individual bargaining with your employers. Now, your employers may not—may not want to be doing this with every single one of its employees, and it may be easier to have the same, you know, one-size-fits-all policy for everyone.
That said, you know, like for instance, I mean, when you think about the paid leave—the paid leave policy, one of the solutions rather than make it a—a—an over—a federal—a federal mandate is like you could have allow employers to let their employee accumulate overtime without paying them, but accumulate it so they can use it for whatever they need, you know, sick days or for—for—for when they have a child or when they need whatever time at work.
But right now, it’s just not possible. There are people advocating here in Washington that—that basically we change the law to actually give more flexibility to employer and employees to actually negotiate things that is fits them like and—and works for them. Because as you say, when you have—when you have a paid leave policy, when you have a—a healthcare policy, when you have—these are all fringe benefits that add on top of our base compensation.
And in the end, people complain that wages are not growing, but actually total compensation is growing. What’s happening is like you’re getting less and less cash for your—well, you’re getting a non-growing part of—like the—the cash part of your compensation is growing not that fast and sometimes, you know, barely. But what’s really growing is actually really striking when you look at total compensation and you divide it by the fringe benefit part and—and the cash part, the compensation part, the base salary part.
It’s like over time, you know, it used to make the—those fringe benefits used to make like 5% of total compensation, and now it’s really close to a third. And so there’s no free lunch. You can’t have both. You—I mean, there’s contrary to what a lot of politicians believe, there’s companies are not all the same and they’re not all sitting on big cash, big—big pile of cash that they can that they if they wanted, if they were if they had a heart, would actually spend on their employees. They have they have their trade-offs that they’re making. They can’t if you’re not spending it on on investment and you’re spending it on your employer on your employees, you know, there’s there’s also consequences for future the growth of future employment. I mean, there’s all these things it’s like politicians tend to not understand that there’s these trade-offs, they happen. And what people see, of course, is how much money they get. They don’t actually realize, they rarely see the full cost of them being employed.
Regulation and the Erosion of Individual Bargaining [22:23]
Bob Zadek: What our government—what the trends in our government is—our government abhors choice and they abhor freedom. Let me explain. In our consumer lives, we are given enormous choices. We get to pick and design and customize everything we want. We have the most choice-filled life as consumers. But as citizens, there is an erosion of choice, and Veronique points out that very erosion.
We are when the government creates a mandated fringe benefit for employment, the government is saying, “Okay, employer, you must compensate all employees by giving them this,” which means the employer doesn’t give the employee the wages so the employee can decide how they want to spend it, on what benefits. So all of these policies, all of these like paid leave policies, are simply the government saying, “No, employee, we forbid you from getting the money and doing with it as you wish. We require you forgo some income and take, whether you like it or not, paid leave, whether you like it or not, because we decide that’s best for you.”
It’s the government legislating away choice and legislating away freedom for the employee. It’s not the government giving you a benefit; it’s removing a choice. This is Bob Zadek. We are discussing the gen—the alleged gender pay gap with Veronique de Rugy. Veronique is a senior research fellow at the Mercatus Center at George Mason University. When we come back after a very short 30-second break, Veronique will explain: yes, there is a gender pay gap, what is the relationship between the women happen to be the sex that bears children, and does that affect how much they can earn? And if so, is that good or bad for society? Lots more to follow. We’ll be back in 30 incredibly short seconds.
[Sponsor/Ad Break Removed]
Biology, Flexibility, and the “Mommy Tax” [25:49]
Bob Zadek: Welcome back to the Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. The show of ideas, never the show of attitude. Thanks so much for listening this Sunday morning. We are discussing with Veronique de Rugy the alleged gender pay gap. Are women improperly and, I should add, illegally discriminated against in the amount they earn by doing the same work as men in our complex economy? Is there a gender pay gap? If so, what is the cause?
Now, Veronique, you have written and spoken about the fact, and you have mentioned this morning of course, that there is in fact a somewhat statistically insignificant but real gender pay gap. That in fact, women are paid less than men. And the—the issue, the cause of that, although again it is statistically insignificant, may have something to do, do you think, with biology? So is there an—albeit insignificant—gender pay gap, and is it simply the function of men thinking they can rip off women in the marketplace, or is it a function of the marketplace operating exactly as it should and reflecting additional costs?
Veronique de Rugy: So—so it’s been—it’s been really interesting. So like for the—for a very long time, people have pointed out that the number that is used by everyone as—as you said, I mean, Bernie Sanders and Elizabeth Warren, Kamala Harris, President Obama before him, President Clinton before him, Candidate Clinton, I mean, it’s like everyone is using—had been using this—that this was not a valid number to actually assess this issue.
So it’s been interesting to actually see that a lot of liberal economists have actually invested the field and started to actually look very closely at this issue. In particular, an economist at Harvard, Claudia Goldin, who is a very, very respected labor economist. And—and so she—she, I think, there’s more and more people who are serious, you know, pundits who kind of acknowledge this.
And so she was—she’s been saying, you know, we we can’t use these numbers. And then she’s been looking at, okay, what explains this—this remaining gap? And what she found was actually there was really no smoking gun. It wasn’t discrimination against women. It wasn’t just like, “Oh, we can—we can pay them less so we’re going to,” or—or “We just don’t like women,” or “We have like a—we’re prejudiced against women.”
What—what really explains this gap is what she calls temporal flexibility. And what that is is basically women, they don’t want to work like full-time jobs, or they want to work full-time jobs but they want to have more flexibility. They want to have more time to spend with their children. They want to have the ability to go and get out of a meeting if the school calls and says, “Can you please come? Your child just vomited on—on—on his desk.” Right?
I mean, women are caregiver. I mean, they’re more of—much more often than men, and they’ve expressed this choice that they’re caregiver in their preferences in the jobs that they will do. So for instance, it’s very visible in—in law firms where basically it’s like either like when you look at the choices, the career choices that women with the same degrees make in a same law firm, where they may decide not to take the partnership route, which means basically you have to be available 100% of the time to your client from Monday to Sundays, evenings and morning early and late, and—and they’ll take the route of being, you know, high-ranked lawyers but with with not so much of that time constraint. And so it’s this preference, this preference, the demand for flexibility, Claudia Goldin explains, that explains like pretty much all of this pay gap.
Total Compensation and the Cost of Choice [30:47]
Bob Zadek: So in fact, there is a cost, a real cost, to accommodate the particular needs or requirements of certain women who—and you used an important word, Veronique, you said women who choose, choose, voluntary. They choose, if there is a time conflict between the needs of their family and the needs of their employment, they choose to have be able to elect the family.
Well, in doing so, that imposes a cost on the employer collectively. And the employer simply saying, “No problem. We will respect your choice. We will allow you to do that. However, that is how we are in effect compensating you.” So the woman who makes that choice is simply being compensated by being given the choice. That’s a value to the woman.
So to measure her pay simply by net pay after taxes on her paycheck is an improper measure. You have to measure total compensation, including the non-cash piece, which is the freedom. When you want the freedom, it comes at—in the employment sphere, it comes with a cost. So while women are paid less in cash, the employer is foregoing value of the same or greater amount. It’s just that the woman is being compensated with a non-cash but real benefit. So it is not mean-spirited discrimination; that would be since 1963 against the law.
And I—I think what Kamala Harris and others are crying for, Veronique, and I’d like your opinion on this, is they want in effect not the woman to have to receive that non-cash compensation, but they want somebody else to pay for that choice. And they are either wanting all employees or all of us who are taxpayers or the employer to somehow pick up the tab on that choice. Isn’t that what’s happening? Isn’t this a fight over who pays for that choice, that voluntary decision the woman makes to opt for certain personal benefits rather than salary? Isn’t it about spreading the cost of that choice among somebody other than the woman?
Veronique de Rugy: So that’s true. I think—I think a lot of—a lot of where they’re coming from is a complete lack of understanding that there is in fact a choice, that there’s no discrimination, that this temporal flexibility is real and—and that women actually demand. Even though, you know, conservatives have been pointing this out for a long time, when you poll women, they tell you that they they’d rather give up some pay to be able to work less and have more flexible—more flexible hours. I mean, this—this is actually not a secret.
But this word “choice” that you’re talking about is—is really something that’s important. Where the battle is going now—and you’re right that what Kamala Harris and these guys would want is they think that the women should not have to be subjected to a trade-off. They should actually be able to have this flexibility in their jobs and work less and still be compensated more. That there’s no trade-off, there’s a free lunch. You work less but you’re still paid exactly as much as the man who who work, you know, longer hours and is always available on the phone.
But the thing that’s interesting about where the debate is going is exactly this notion of choice and an outrage over the fact—I mean, outrage maybe the word is a little strong, but it’s actually really you see it now in all the headlines. It’s called—this gap is called a “mommy tax.” And it’s kind of like, “Wow, it is really unfair because effectively women don’t have a choice because nature, biology, what have you, has made them the caregivers.”
So it’s really—it’s not a choice. It’s this reality of life which is actually dictating that women have then to demand more flexible hours because they’re caregivers. And it’s interesting, like you see, faced with the impossibility, at least the serious ones, to continue saying that it’s a big pay gap and continuing saying that there’s—it’s discrimination. They’re just shifting to this notion that actually it is not a choice. It’s biology. Like women have to be the one having the children. Isn’t it unfair that as a result, what comes next is that they have to make choices of working less?
And so that is kind of actually an alarming development in my opinion, because I don’t know where you go from there. But—but that’s—it’s all about this what you and I see as a choice, they see as actually not a choice at all. It’s one that’s dictated by something but basically they don’t have a choice.
And it’s—so—so it’s kind of interesting. I—I should say, by the way, that there’s—there’s a way that Claudia Goldin—and I recommend for people to actually looking into her work. I mean, there’s things that you may not—you may not like, but she—one of the things that she talks about, she says that there are a lot of jobs, those high-paying jobs, the culture, the way they are organized, mean that for instance if you’re—if you’re a client at a law firm and you want access to that one lawyer, or at least two or three of those same lawyer, they are the one you put your faith in and you put your—your—your life and your business in for whatever, you know, things you’ve been hiring them for.
And the impossibility or the—the requirement from the client that there’s basically no substitute away from these employees—from these lawyers—is actually one of the things that create these barriers. The fact that you can’t switch from one lawyer to another is one of the reasons why, for instance, like women couldn’t actually be like really—I mean, some make the choice—but be like, you know, those high-ranking senior partner. And then when they are busy taking care of their kids, someone else could take care of their—of their—of their client.
And that demand, so she says basically if there were a cultural shift where there were more acceptance of employees being perfect substitute for one another, you would see less of this need for temporal flexibility. And she does—she’s done a lot of studies on pharmacy, where it’s actually a perfect example of people with the same degrees and men or women. When you—when you walk into a pharmacy, for the most part you don’t care who is going to serve you and give you your—your pills, right? There’s this perfect sub—you know, you can sub—you can substitute one pharmacist for another, right? And—and that explains that basically there’s—there’s absolutely no—there’s no pay gap in these type of professions.
The Free Market as a Barrier to Discrimination [39:02]
Bob Zadek: And what’s interesting is—and I’d like to just remind our audience, us being a libertarian show and you and I worshipping at the altar of the free market as it were, is that it is to assume that a business would behave irrationally and still be able to survive in a somewhat free market which we have in this country is just totally incomprehensible.
And there’s no history of any business adopting an irrational business model, whether it’s going back to the Jim Crow South and not hiring or selling to blacks. There’s no instance where that business model could possibly survive. And those of you who want to point to—
Veronique de Rugy: Unless it’s enforced by the government. Unless it’s enforced by the government.
Bob Zadek: Exactly. And enforced by the judgment is the perfect segue into the reminder that when we had segregated lunch counters in the Jim Crow South, when we had hotels who would not rent rooms to blacks, and those—and people will point to that as an example of discrimination in the marketplace.
I need to remind everybody that Jim Crow, that refusing to serve blacks at lunch counters and allow them to stay at hotels, remember my friends, that was the law in the South. That was not done as a business model. There is no suggestion that if there were not Jim Crow laws that even in the racially somewhat segregated South during the pre-civil rights era before the 60s, there’s no indication that businesses if they voluntarily had a sign “No blacks” or “No blacks or Jews,” whatever the obnoxious, painfully discriminatory signs were, that that business could possibly survive.
So bus—and in the Jim Crow South, it was because of the government—state governments—imposing discrimination, imposing a bad business model, that we needed corrective federal legislation. So to assume that some mean-spirited employer as a matter of employer policy, company-wide, could survive by paying any employee one penny less than they are worth is just irrational and it’s contrary to every understanding of the free market. So Veronique, doesn’t the free market serve as the ultimate barrier against discrimination?
Veronique de Rugy: Yeah. And—well, I—listen, you will always find people who misbehave, right? What you want to see is actually put in—you want a system that actually guarantees that the incentives are in actually treating people the best. And the free market does guarantee this. It doesn’t mean that every single actor is going to be this perfectly pleasant and civil and—and loving person, but that its economic interest is actually in acting as if.
And the free market definitely does this. And by the way, one of the—one of the interesting things is to see what is happening to wages and to all these fringe benefits for women when—when the economy is growing. Target just announced that it was going to extend paid leave to—to part-time employees. Part-time employees, right? And why is this? It’s because Target needs employees, and the economy’s growing, and there’s a competition between—between companies to attract the best employees.
And the way you do it, you can do it with more cash, and some of this is happening—in fact, we’re seeing it, there’s a wage growth going on, especially at the lower level—and on top of that, you extend more benefits. And so you see, it’s not that Target is—the Target employers necessarily think that the best thing they can do is just throw cash and tons of benefits on their employees all the time at the expense of their bottom line. It’s like they actually see it as a mean—a means of survival, of good business practice.
And this is why the free market actually does align these incentives with actually, you know, behaviors that—the intent is—it doesn’t matter what—you don’t need saints in the free market system. You actually have a system that actually creates outcomes that are overall quite desirable.
Now, it doesn’t mean—one of the things that’s my big—my big—my big problem with this misunderstanding of what the market does: the market is a process, right? And what comes out at the end is not necessarily your dream unicorn world. And so this is why a lot of people call “market failure” the fact that the market outcome is not the one they’ve dreamed up it would be.
But but I think that’s like when you look at a market outcome, you should know that considering all the constraints, and that includes a lot of government intervention, this is the best—this is the best outcome we could get. And if you—if you are displeased with it, you need to understand not call it necessarily a market failure, but understand: what is it, for instance, that explains that not more women report—even though a ton of women report having paid leave—what—what are the—what are the—the, you know, the constraint and—and the regulation that actually get in the way of employers, you know, giving more of these benefits to lower-income women? And—and when you—when you look at it, it makes a lot of sense. And suddenly you realize that it’s not that business owners are—are evil—are evil.
Bob Zadek: They’re simply motivated by their own self-interest. And but for that self-interest, as Adam Smith pointed out, it is not out of their generosity that butchers and bakers provide you with exactly what you want at the price you want to pay. They do that—they stay up all night figuring out how to give you what you want because it is in their self-interest. And their self-interest is to please the consumers and to please the public.
Critiquing the Harris Proposal [46:24]
Bob Zadek: Now, Veronique, I’m sure you’ve given a lot of some thought, perhaps with a bit of a smile if not a smirk on your face. We have a few minutes left. Kamala Harris seized the headlines for about a day and a half with her proposed bill, which she entitled “Holding Corporations Accountable for Pay Inequality in America.” I’m sure you have glanced at her proposal. We have a couple of seconds left. It is laughably ignorant economically. I wonder if you would just comment, and only not because that bill is important, because it shows the mindset that you and I are up against every morning when we open up our eyes. So tell us in a few words what the theory is behind the Harris Holding Corporations Accountable Act.
Veronique de Rugy: Well, I mean, it’s—it’s exactly what we’ve been talking about. It’s this—this complete ignorance of the facts, of data, of economics. And it’s pandering to the ignorance of people. And it’s also trying to pretend that somehow government is the solution to whatever fake problem they can dream up.
And this proposal is actually quite terrible because not only is it ignorant, going after a problem as we’ve said that just doesn’t exist, but it’s really the ways that she she proposes to address it is is quite devastating. She would actually force company to report quarterly, I think, if I remember, all of their pay. And if they can’t just—if they cannot justify to a bureaucrat in Washington why there’s a discrepancy, then imagine the compliance cost for employers above—it’s above 100 employees. Imagine the compliance cost to be doing this, to having to report every quarterly or every year to to those bureaucrat.
Then you will be slapped with pretty significant—significant fine. It means that at all time you’re under scrutiny. And so what—I mean, what are you going to do? I mean, I mean, one way of doing this to addressing this without having to comply to that—without that stupid law—is to stop hiring women. I mean, that’s one way of doing it. I don’t think companies will go as far as doing this because actually women have become a really indispensable part of the—of the labor force. But it will definitely make it less appealing to hire women when basically you’re under scrutiny for every move that you make. And and that it’s not only you’re under scrutiny, that this—this law is going to be just high cost to you.
Bob Zadek: And remember, remember where we started this show an hour ago. In 1963, it became illegal under federal law to pay a woman less than a man for the same work. So talk about a problem that was solved 55 years ago, and we are still talking about a solved problem is makes no sense whatsoever. It is simply a way to impose a cost borne by each and every one of our listeners to impose a compliance cost. And as Veronique so aptly said, it is pandering to the woman’s vote.
And I describe it as creating the total absence of a need and then filling it. That’s what the Kamala Harris and the Liz Warren proposal about women in boardrooms is all about. So Veronique, is it the summary that there is an statistically insignificant wage gap, not enough to garner any headlines whatever? And that is because of the fact of life that women, because of their choice, they cost a tiny bit more for an employer to hire, and that tiny bit more is reflected in the tiny bit less that in the overall economy women are paid. So in fact, the cost to the employer is the same. We have about 30 seconds, Veronique, for final comments.
Veronique de Rugy: Yeah. Whatever gap exists, it is explained by—when you measure things properly, whatever gap remains is explained by this temporal flexibility, basically women choosing to—to be caregivers and demanding more flexible work hours in exchange for slightly less—
Bob Zadek: We’re going to be—we’re going to be cut off in about five seconds. Veronique’s most important word was “women choosing.” It’s a matter of choice. Bob Zadek, thanking Veronique so much for giving us an hour of her time and saying so long for now.
Veronique de Rugy: Thank you.