The Economics of Discrimination

As a caveat, this is a delicate subject. I've seen economists explain it in some videos only to find some discouraging emotional responses that indicated a failure of understanding. Please keep this in mind.

The Economics of Discrimination

Try to place yourself in the shoes of an employer. You have two job applicants and you believe, either correctly or incorrectly, whether in earnest or as a result of prejudice, that one is more skilled than the other. However, both cost you the same to hire as a result of a law. Which one do you hire when both cost the exact same? The one you perceive to be more skilled or less skilled?

Equal Pay Act

The point of this article is to argue that laws like the Equal Pay Act actually hurt women.

The Economics of Discrimination

This might be incredibly counter-intuitive to some. How could a mandate that forces employers to pay both males and females the same for the same/similar work do anything but help women? How could it possibly harm them?

Let's break it down to four possible scenarios and plausible outcomes with a skilled female engineer as an applicant for an engineering firm.

1) Unbiased Employer

Let's take an unbiased employer. He wants to hire people based on merit completely independent of their gender. All he cares about is finding skilled workers to contribute value to his firm.

In this case, the Equal Pay Act changes nothing and was completely unnecessary.

The female applicant will likely be employed and paid the same as her male colleagues who do the same work. Let's say this is $30/hour.

2) Biased Employer

Let's take a biased employer, maybe even openly sexist. He wants a male-dominated team and has a preference towards hiring males over females.

In this case:

A) With the Equal Pay Act, our female applicant will not be employed. She will make $0/hour since our employer is not willing to hire a female at the same cost as a male.

B) Without the Equal Pay Act, our female applicant will be employed but she will be offered $26/hour initially when her male colleagues are earning $30/hour. This is discriminatory but at least she's employed.

She might also have to climb uphill, but there might be some possibility for her to prove that she produces great value to the firm and negotiate a raise, placing her equal to or above her male colleagues in wages.

The Economics of Discrimination

Hurting Women

As we can see from the chart above, the female is much worse off under the Equal Pay Act. The act certainly has good intentions behind it, but bad results. It took away the only bargaining power she had to allow her into the workplace even when the firm is run by a sexist.

These kinds of negative consequences are typical when we try to use the force of law and government mandates to make things fair. It's important to remember that bad people look for loopholes. In the case of the sexist, the loophole is to just avoid hiring females at all. Under the Equal Pay Act, the sexist no longer has any incentive to ever hire a female.

To be practical about helping people in ways that genuinely help them, we often have to choose the lesser of two evils. Women in the workplace are actually better off without the Equal Pay Act.

The Economics of Discrimination

Ending Discrimination

This is not to approve of discrimination whatsoever. It is very much unfair if our female engineer finds herself employed by the sexist and initially earns $26/hour when she should be making $30/hour.

Nevertheless, she is still better off making that than $0/hour which is exactly what happens under the Equal Pay Act. Fixing discrimination through law is a slippery slope. If we want to truly fix discrimination, there are almost certainly better tools than trying to force people to do things through government.

The ideal solution in my mind is to use education and upbringing. Have boys and girls cooperate and compete with each other in schools and recognize each other's skills and values and develop mutual understanding. We can overcome discrimination this way in future generations.

The Economics of Discrimination

Affirmative Action

The way wage mandates and Affirmative Action interact with each other make a most unholy union. Affirmative Action might seem like a necessity with wage mandates like the Equal Pay Act in place, but it also doesn't lead to superior outcomes.

Under Affirmative Action:

1) If we take the unbiased employer who was never sexist in the first place and hired people based on merit alone, we're now forcing him/her to hire people based on their sex/race instead of their skills. We just took someone who never discriminates and forced him/her to discriminate to meet quotas. This is definitely unfair.

2) If we take the sexist employer, what a lot of these types tend to do to meet their gender quotas is only hire the most overqualified people. Our sexist employer might still fail to hire our female applicant in favor of one that's even more qualified, or he might overlook a better-qualified male applicant in favor of her if he's desperate to meet his quota. This still isn't quite fair.

The Economics of Discrimination

Worst of all, Affirmative Action tends to encourage a new type of discriminatory mindset. People might look at a female and think she's only employed because of the policy, not because she earned her position through merit. Our goal should be to put an end to discrimination, not to fuel it by introducing "positive" discrimination and thinking two wrongs make a right.

Nevertheless, Affirmative Action may be argued as a practical necessity even if it fuels further discriminatory mindsets with the wage mandates in place. Still, the best practical outcome for women likely occurred when we simply didn't have the Equal Pay Act. Without wage mandates, Affirmative Action isn't a necessity.

The Economics of Discrimination
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