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“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”     Thomas Sowell

February 1, 2009

The Absurdity of the Lilly Ledbetter Fair Pay Act

by tarran

The first bill that Obama signed into law is the Lilly Ledbetter Fair Pay Act of 2009.  The bill is designed to plug “holes” in the Civil Rights Act, Age Discrimination in Employment Act and the American’s with Disabilities Act, namely in the requirement that people sue within 180 days of the unlawful discrimination occurring.

The very premise of this law should warn people that the law is a bad one; usually victims are aware that they have been victimized, which is clearly not the case with the actions the law seeks to criminalize.  This law  attempts to protect  people who arbitrarily, possibly years after the fact, decide that a contract they accepted was suddenly unacceptable.

Good laws, ones that attempt to criminalize acts which harm or injure a victim don’t need such a clause.  A victim of assault and battery, for example, will become immediately aware that he or she has been attacked.  A person who is the victim of fraud can pinpoint when the other party failed do to satisfy their contractual obligations.    While on occasion, it may take years for the fraud to manifest itself, inevitably, the victim becomes aware of the fraud and can point to the contractual violation that took place.

The case of Lilly Ledbetter, after whom the law was named, shows the absurdity of the law very plainly.  Lilly Ledbetter worked for Goodyear.  Over the course of many years, they offered her an employment contract that paid her far less than contracts made with men performing the same or similar duties.  At the time, she voluntarily accepted the contracts, clearly meaning that she thought the salary was an acceptable payment for her services.  As she neared retirement, she became aware of the fact that male coworkers were paid more generously and sued on the grounds that she was the victim of unlawful discrimination.

Interestingly, had Lilly Ledbetter’s male coworkers been paid salaries that were approximately equal to hers, under the law she would not be a victim.  This highlights the bizarre nature of discrimination law.  Compare this law to laws governing assault.  If a person assaults someone, how many other people were assaulted, how consistently the attacker assaults people he comes in contact with are absolutely irrelevant to the question of whether or not a crime has been committed.  Under such a rubric, we could argue that Ted Bundy wasn’t really a murderer, after all he killed nearly every woman he picked up, thereby not unfairly signaling out any one of his victims for unusually harsh treatment.

Odds are that any person, at some point in their lives, will regret some contract they entered into willingly that seemed like a good idea beforehand.  The notion that the law can punish the other party after the fact for fulfilling the terms of an agreement that was freely entered is dangerous; it assumes that society is improved by making the legal system more arbitrary and capricious.

The authors of this law claim that it will improve commerce by making commercial transactions more orderly.  Nothing can be further from the truth.  This law makes the decision to employ members of protective classes to be quite perilous.   Under this law, a person can work for a company for decades, and then turn around an sue the company for discrimination and be awarded decades of back pay.  It will, if anything, make businesses more reluctant to hire women, minorities, disabled or gays or any of the other protected groups that the law seeks to protect.

The law is also unconstitutional, not only because it depends on an incorrectly expansive reading of the General Welfare clause, but also because the law appears to be retroactive (to me anyway).

While I applaud the goals of the law, to expand the options available to women, minorities, the disabled etc, this law is very counterproductive.  The bargaining power of workers is enhanced when they can more easily switch jobs and employers have to compete for the labor they hire.  When the government intervenes in the labor market by making employing certain people more risky, they are in effect making those laborers less attractive to people who are considering buying their labor services.   In short, this law will hurt women, hurt minorities, hurt the disabled, etc.  It is, in short, an own goal.

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4 Comments

  1. The supporters of this bill have clearly never read Why Men Earn More: The Startling Truth Behind the Pay Gap — and What Women Can Do About It

    Comment by Justin Bowen — February 2, 2009 @ 3:04 pm
  2. The author of this selection makes a couple of interesting arguments. I’m guessing that the primary one is that if the Federal government criminalizes wage discrimination employers will be less likely to hire members of the protected classes. So is the author trying to convince us that American employers will only hire members of the protected classes if they are permitted to set their pay scales based on race, gender, religion, or any other non-work related means? Our country’s economic roots are grounded in the belief that all men and women are allowed the fruits of their labor. That concept has materialized into the equal pay for equal work ideal that we abide by today. While I understand the logic behind this author’s assessment, I feel that it is flawed, in that, the basis for the argument is contrary to our American ideal of equality in compensation for equal work. Further, the author attempts to support the argument by comparing the victim of wage discrimination with the victim of an assault. It is true that the victim of an assault is, more often than not, aware of the fact that he/she is being, or has been assaulted because of the overt nature of such an act. Most Americans, however, make it their business to keep their salaries to themselves. In other words, the amount of money that we earn is not often included in our Monday morning water cooler conversations. This being the case, we rarely know what the person standing next to us on our various assembly lines are being paid. Additionally, since we have all been taught the tenets of the Civil Rights Act of 1964, and other equality legislation like it, we continue to work secure in the knowledge that each member of the line is making equal pay for equal work. The idea that we willingly enter into contracts with employers, knowing that we will be paid less than our coworkers because of our race, gender, etc., is absurd, and, in my mind, a ridiculous argument for this author to attempt to base his/her logic on. Finally, should any American discover that he/she is being unequally compensated for non-work related reasons, it is not just their right, but their duty as Americans to demand that the wrong be righted, and that they be duly compensated.

    Comment by David Diggs — February 3, 2009 @ 11:36 am
  3. David, you miss the main point I am trying to make – not your fault I wrote it late at night and as a result is was muddled.

    There were several points I was making:
    1) When one person harms another, how they treat other people is irrelevant to the injury. Whether or not I have assaulted other people is irrelevant to the question of whether or not I assaulted you. If I hit you, the injury you receive is in no way altered by how many other people I hit.

    Mrs Ledbetter was happy with her pay. She thought that the pay was worth her time and effort. Had it not been, she would have refused the job offer or quit. Working for someone who pays you a satisfactory amount of money is not an injury.

    The fact that later on she changed her mind and decided she wanted more money in no way changes the fact that in the past she was satisfied with her pay, and that Goodyear was meeting the terms of the contract she and it both entered.

    Had she negotiated a pay increase, she would have been well within her rights. Her attempts to nullify the contract because she regretted selling her labor at a cheaper price than her neighbors do not grant her the moral right to force the other party to the contract to cough up more dough.

    2) Equal pay for equal work was not been a central principle of American society. Even if it were a central principle, I would be arguing against this piece of legistlation, because a) I am an anarchist opposed to all laws, b) because this law allows people to post facto rewrite contracts well after they were entered into.

    To understand what I am trying to say, you need to consider a set of transactions that people routinely enter into and how the law would affect these transactions.

    Consider a person who rents out their labor services, but a house. The renter pays a monthly fee for the use of the house much like a employer pays for the use of a laborers labor.

    The rental agreement is in force for years, the renter is satisfied with the amount of money he is paying for the house, while the property owner is satisfied with his income. Then, one day the owner is talking at grocery store, and finds out that his renter is renting a house of simmilar size a few blocks away, and is paying much more for it.

    The property owner sues the renter, demanding that he not only increase his rental payments to match those made to the other property owner, but to also to retroactively make payments for past years!

    Any court system that allows this sort of suit to go forward is arbitrary and capricious because there is no way of predicting whether or not an agreement that seems acceptable now will generate a lawsuit down the road. You might want to ccheck out these links on the subject of Regulatory Uncertainty to understand exactly what a chilling effect this can have.

    Facing this sort of law, I can do one of two things: 1) not hire women and minorities, 2) ensure that they are rigidly paid equal amounts regardless of whether they deserve it or not.

    Now, many supporters of the law would argue that the latter is precisely the point. However, this is not the same as paying people based on ability. There are work environments that have rigid pay scales that divorce ability from payment – unionized ones. And, if you ask anyone who has worked in a union shop, you can come up with legion examples of how such rigidity produces perverse outcomes.

    3) The price of labor, like the price of everything, is subject to upward and downward pressure. Scarcer forms of labor are more expensive, more plentiful forms are less expensive. Of course, a person selling their labor services wants as much money as they can get, while customers purchasing their labor wants to get it as cheaply as they can.

    In labor there is usually a huge band of overlap between the lower limit that a labor provider is willing to work for and the upper limit that a labor customer is willing to pay for. The price that they agree on will lie somewhere on that band. The number they agree on will depend on numerous factors including the bargaining ability of the parties.

    This legislation makes women, blacks and other protected groups less attractive – in that they introduce a risk of being sued later on, meaning that the upper price that employers are willing to pay is lower. Instead of the upper limit being their marginal productivity less some profit, it will be marginal productivity less some profit less some risk premium.

    Additionally, because it makes employers less likely to consider hiring members of protected classes, it harms the members’ bargaining power. Women who have trouble landing job interviews are going to leap at the first job they get, rather than holding out for higher pay. It is my thesis that this will actually heighten pay disparities, not reduce them.

    Comment by tarran — February 3, 2009 @ 1:41 pm
  4. David, the author of this article isn’t claiming American employers intend to base their pay scales on race or gender. In free markets, pay scales and wages are based on the type of labor being offered, and in most cases productivity. In other words, we’d be dealing with meritocracy. However, if such laws as these were passed in a free market, if an employer had one spot available, and had to choose between a white man and a black woman of equal skill and productivity, his choice would be obvious. He could get the same benefits from hiring both, but only one of these comes with no arbitrary government baggage: the white guy. The author’s assessment of an own goal is sadly right on the money, and I expect the negative effects to show as the recession rolls on.

    Comment by Armando — February 5, 2009 @ 10:41 am

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