Equality of Pay for Some at the Expense of Others

This week we’ve made a conscious decision not to write about p——y or h—–g. Even though we’ve come across a few gems worth commenting on. And even though several readers have sent us a couple of choice morsels too.

But, we’ll stick to our guns and leave any p——y or h—–g comments until next week.

Anyway, our comments on pay equalisation seem to have set off something of a discussion both on the Money Morning website and in emails we’ve received to the Money Morning mailbag.

It’s an interesting topic so I thought it worth our while having another look at it based on some of the comments we’ve received.

A few interesting comments include this from ‘Zengirl’ that was left on the Money Morning website:

“It’s overwhelmingly disappointing that the attitudes of men toward equality are no different in the 21st century than they were in the last few. Using the concept of ‘competitive advantage’ to justify inequality is outrageous and simply cannot be supported in any way. Indeed, if your argument had any weight, then indigenous people (who are paid far less than any of us) would be the most competitive in the labour market!”

And also this from RB:

“IF women have a ‘competitive advantage in the workforce’ by being paid less, why do we not see women as heads of most of the board rooms, businesses and corporations throughout the country?”

Plus this one from CB:

“You have to be employed at a decent wage, so that your employment actually bestows you a decent spending power for it to be much good to yourself, your dependents, and even the overall health of the economy.”

And this comment from Nick:

“None of my staff’s pay is rated on anything else but job description and ability. Only a fool would jeopardise his company or business just to save a couple of dollars. Good people are the foundations of any business. I have found that people who are loyal to their employer are also loyal to their families, and visa versa. And if an employer is incapable of recognising that, they will suffer in the long run.”

Finally there was this gem:

“Charming re the low pay for women… women do 90% of the work on the planet and own 2% of the assets Big Daddy… disgusting especially when 99% of men are less intelligent than I am. get knotted Kris”

The first point to make, before we go any further, is that there will always be a degree of generalisation with this issue. The numbers from the pressure groups who favour pay equalisation trumpet the ‘fact’ that women are paid on average 17% less than men.

Is equal pay fair?

The call by them and others is that pay should be equal regardless of whether you’re male or female.

‘Equality’ is interesting because it suggests that all people should be paid at an equal rate. Therefore it suggests if Person A produces 200 widgets a day they should be paid the same as Person B who produces 201 widgets per day.

Is that fair? Probably. It’s close enough not to worry about anyway. But what if one is producing 300 and the other only 150? Is it fair they are paid the same? Now, this example isn’t specific to gender pay rates, but what it does is provide a case for employees to be paid different wages.

Once you agree that one method of determining different rates of pay is valid then you have to accept that there may be other ways of determining different rates of pay – not just based on the amount of widgets produced.

Then there are other comments that suggest there already is pay equality. That bosses would be mad if they paid female employees less than male employees.

We’ve no doubt that’s true. If there is no need or incentive for an employer to pay one group of employees differently from any other then the employer will pay the same or similar rate to all.

It will be a decision the employer has made based on experience and the market.

Furthermore, there’s the argument that female employees don’t “accept” lower pay, that rather it’s forced upon them.

We’d argue that everyone who takes a job “accepts” the level of pay. If they did not “accept” it they would not take the job. People only work if it’s in their interests to do so. They may not like the pay, but if it’s more beneficial for them to work than not to work, then they will work.

Finally, a quick note on the excellent comment from Zengirl, “if your argument had any weight, then indigenous people (who are paid far less than any of us) would be the most competitive in the labour market!”

‘Do-gooders’ cause more harm than good

Isn’t this an argument against arbitrary wage policies? If it’s true than indigenous Australians are discriminated against, then doesn’t it make their position much harder if they are unable to compete in the labour market?

If a minimum wage is set at $10 an hour a discriminating, racist or unenlightened employer may choose to employ a white person as that is their preference. But if there is no minimum wage, perhaps a discriminating, racist or unenlightened employer would be prepared to pay only $8 an hour to an indigenous Australian.

Perhaps the discriminating, racist or unenlightened employer would soon figure out that the indigenous Australian is just as – perhaps more so – capable than the white Australian and therefore increase the wage to $10 an hour.

However, at a mandated $10 per hour the indigenous Australian doesn’t have a chance, because the discriminating, racist or unenlightened employer has a prejudiced view that the indigenous Australian is less productive and is therefore only worth $8 per hour.

We’ve used the terms discriminating, racist or unenlightened employer, but we’re just using an extreme example. The fact is there’s obviously a barrier to employing indigenous Australians because even non-discriminating, non-racist, enlightened employers may be reluctant to do so.

Because if there wasn’t a barrier then indigenous unemployment rates would be the same as for all other groups. Our bet is that government interference is at the core of it – in fact, we’ll guarantee it.

There are plenty of other arguments and opinions as well. Feel free to leave your feedback when this article is posted to the Money Morning website later today.

But for now we’ll make this comment. Wage rates are determined by the market. In some cases it’s a free market, and in other cases it’s a manipulated market – eg. Award rates, trade union interference, government interference, etc…

No bumper pay day

But in all cases wages are determined based on what an employer can afford to pay. Artificially raising a wage rate doesn’t provide an across the board bumper pay day to everyone.

Instead it will provide a bumper pay day to some but create a pay cut or loss of pay to others.

Let’s take a look at a timely story that appeared in the Herald Sun: “Julia Gillard supports pay equity bid.”

According to the story:

“The Australian Services Union will launch a test case with Fair Work Australia today regarding the lower pay of community sector workers. They are the people who work in women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources. The union will argue that lower wages in the feminised community sector should be brought into line with pay rates in a similar, male-dominated industry.”

The article doesn’t specify which “similar, male-dominated industry” they want to align the wage rate with, so we’ll just have to make a whole bunch of generalisations. As I’ve mentioned it’s one of the things you have to do with this subject, so we’ll do that right now…

Our guess is that women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources jobs are either funded by government, quasi-government or charity-based organisations.

We’ll also make another sweeping statement to say that most of these services are either provided for free to the end user, or they may ask for a ‘donation’ from the end user to use the services. We’re prepared to be corrected if we’re wrong.

So, the question we have is how will the new higher wage rates be paid for?

According to the Herald Sun, “Australian Council of Trade Unions (ACTU) president Sharan Burrow admitted the push for a $100 a week pay rise for 200,000 community sector workers was not small.”

For the record, our Canon LS-100TS calculator tells us that’s an extra $20 million that these women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources organisations will need to come up with.

If we’re right and these organisations mainly rely on charitable donations and taxpayer funds then it means an extra $20 million will need to be raised just in order for them to provide the same level of service as they currently do.

Failure to do so will mean these groups will either need to reduce the number of staff or reduce the services they provide.

Naturally the argument will be, “Aha! If these are government funded then it’s easy, the government can just increase taxes to pay for it, it’s the socially right thing to do.”

Well, you know our opinion on taxation so we won’t delve into that again today. But let’s say the government does increase taxes to pay for it – after all, it’s just $1 per person per year, that’s not too much for anyone to cope with is it?

[Ed note: Our trusty calculator deceived us. Of course the full calculation is $100 x 200,000 = $20 million, times 52 weeks, equals $1.04 billion. That’s a cost of about $50 per Australian per year].

The problem is this. It’s our old favourite scenario of considering what is not seen.

What do I mean by that? If these government funded organisations do receive the extra money to pay for increased wages and they have done so due to higher government taxation, then it means less dollars in the pockets of individuals.

And perhaps it means that with fewer dollars in the pockets of individuals, there is less money for those individuals to donate to charities. With government subsidisation of one set of welfare organisations it potentially means other welfare organisations – those that rely on volunteers – could see a drop in donations.

Especially if taxpayers start to consider that a portion of their taxes is going to charities. Evidence in the early years of the National Lottery in the UK was that people donated less to charity as they were aware that a portion of the cost of their lottery ticket went to charities – that may have changed.

In other words, women’s refuges, family support centres, drug and alcohol rehabilitation and migrant resources gain, whereas donation-only or volunteer-only organisations potentially lose due to lower donations.

But that’s not the only potential problem. There’s the issue of the type of person drawn to these jobs.

Unskilled workers lose again

Let’s say for arguments sake that current employees in these organisations earn $30,000 per year (just to repeat, we’re just using this as an example). And let’s also say that this particular wage attracts a certain type of person, a person that has the desire to earn $30,000 per year and is skilled or qualified to do so.

So, what happens when the wage is increased by $100 per week to $35,200 per year? And let’s assume that the government stumps up all the extra cash so there are absolutely zero job losses.

Any guesses about what is likely to happen?

Well, one obvious impact is that the job will now attract all people who would like to earn up to $35,200 per year. We can take it one step further by saying – again using a generalisation – that those who expect to earn or who can command a wage of $35,200 may have more skills than those who were doing the same job but who were prepared to accept $30,000.

The consequence is that if the new legal minimum wage in this sector is $35,200 rather than $30,000 for what is in effect the same job, employers will be more inclined to employ someone with a higher skill set so that they are getting more ‘value for money.’

In other words, why would an employer pay someone $35,200 when they are only worth $30,000? They wouldn’t, not if they can attract someone with more skills who is potentially more productive for the same wage of $35,200.

Therefore, even though there may be a zero net impact on jobs, the effect is that the lower skilled workers are being priced out of the market by those with more skills. Simply because a mandate from the government decrees that $30,000 is too low a wage.

The employee that is only worth $30,000 to the employer is now unable to get a job in that industry and instead will have to seek work elsewhere. And that’s even though the potential employee may be perfectly qualified to do the job.

Of course, it implies the cost for the pay rise is fully underwritten by the government. In reality it won’t be. So not only will those with lower skills be pushed out of this type of employment, but there will also be fewer job opportunities for those with the skills as organisations will be forced to reduce staff levels.

Remember, pay equalisation doesn’t mean equality of pay for all. It means equality of pay for some at the expense of others.

Cheers.
Kris.

Tagged as: Australian Council of Trade Unions, Australian Services Union, employment, Fair Work Australia, inequality, labour market, pay equalisation, taxation, unemployment