Imagine you are running a small business in California, and your most valuable salesman gives you two weeks’ notice. The shop down the street has offered to pay him 10 percent more than his current wage. It’s nothing personal, he says — if you can match that offer, he’d be happy to stay — but otherwise he has to do what’s best for his family and his future.
If you were a small-business owner faced with this news, your next step would be to conduct a cost-benefit analysis. You’d weigh the extra cost of matching that higher pay rate against the costs associated with having to find, hire, and train a replacement. You might find that it’s better for your business to avoid the disruption of bringing in someone new.
Yet California business owners will soon face a more complicated set of considerations when making such mundane employment decisions. Governor Jerry Brown has just signed legislation called California’s Fair Pay Act, which will make businesses more vulnerable to lawsuits for any differences in pay between workers. Under the new law, wage differentials between men and women doing “substantially similar work” are prohibited unless there is a “bona fide factor other than sex, such as education, training, or experience” and the differential is “consistent with a business necessity.”
Is retaining a valued worker a business necessity? It may seem so for the small-business owner, but a judge trying to make sense of the new law may have a different interpretation. After all, the law further stipulates, “This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.”
In other words, this small-business owner could be found guilty of employment discrimination if an aggrieved employee comes up with an “alternative business practice” that could have been adopted. Will it matter to the judge if that alternative business practice would have been less effective and more costly? The law isn’t clear. What is clear, however, is that the legal process of discovering exactly how California judges will apply this vague but sweeping new criterion will be costly.
As a result, under this new regime, small-business owners will have an incentive to create more-rigid compensation structures. Workers should expect less flexibility to negotiate specific hours or to work from home. (This is particularly bad news for women, who are often willing to trade higher pay for such flexibility.) Employers will be less likely to reward employees for hard-to-quantify merit-based criteria. Employers will have to spend more time maintaining records to justify existing compensation classes. That probably won’t encourage greater productivity but may be necessary to minimize legal costs — a very legitimate business concern.
Proponents of the Fair Pay Act ignore such real-life considerations and focus instead on the need to reduce the “wage gap” between male and female workers. They cite misleading statistics, such as the assertion that California women earn 84 cents for every dollar a man earns, designed to convince the public that discrimination is so rampant that women are consistently paid a fraction of what men are for the same work.
Yet that’s not what that statistic reveals (as the activists well know). The “wage gap” statistic does not take into account the many relevant factors that impact how much men and women earn — number of hours worked, industry, specialty, years of experience, and education, to name but a few. When those factors are controlled for, the gap closes considerably. A few percentage points remain, but it is a very different picture from the lies the public consistently hears from progressive politicians and sees splashed across activists’ poster boards.
These activists are taking advantage of a natural, laudable instinct. Americans know bad bosses exist. We want workers to be judged and rewarded on their contributions and not held back by sexist attitudes. Gender-based discrimination has long been illegal, and employees can and do sue employers for discriminatory practices, but we know this doesn’t help everyone, and we want to do more to protect vulnerable workers.
Yet this desire to prevent and punish discrimination needs to be balanced against the real costs and unintended consequences of the system that is put in practice. Unfortunately, the public doesn’t hear much about how the measures advanced under the banner of “equal pay” can backfire on workers, discourage merit-based compensation, reduce workplace flexibility, and drain resources from job creation into red tape and frivolous lawsuits. The media tend to echo the Left’s charge that opposition to anything called “equal pay” is just part of a nasty “war on women.” Conservatives, understandably, often avoid such debates that seem designed to demonize them.
In fact, real debate about important policy issues is the biggest casualty of the trumped-up “war on women” rhetoric. It’s hardly a surprise that women will bear the brunt of the unintended consequences of the bad policies like California’s Fair Pay Act that are passed as a result.
— Carrie Lukas is managing director of the Independent Women’s Forum.