One of the most frightening developments in the run-up to the 2020 presidential election is the Democratic flirtation with socialist ideals. One recent manifestation of this unfortunate trend is the recent proposal from Senator Kamala Harris (CA) to have a vast government takeover of employment markets in the name of gender equity. In an age in which the phrase “diversity and inclusion” is on the lips of every business and university, she announces, without a shred of evidence, her deep conviction that labor markets consistently and systematically discriminate against women by failing to offer them equal wages for equal work. Her purpose is to hold “corporations accountable for pay inequality in America.” How? Through “the most aggressive equal pay proposal in history.”
The proposal goes downhill from there. The first question that one has to ask is why competitive labor markets need any form of wage regulation to protect women in the first place. Sure, there are thousands of large corporations in America, but they are in constant competition with each other, along with every small firm in the market, to hire the best talent they can find. Harris starts out with misleading statistics that lament that women only earn 80 percent of what men earn, and then waxes even more indignant that the ratios are even worse for Latina women (53 percent), Native American women (58 percent), and African American women (61 percent). Clearly, any effort to accurately explain these outcomes requires an accounting, as she acknowledges in the fine print, for education, hours worked, job classification, years of experience, parental leave, and many more factors. Accounting for some of these factors—many others are hard to identify, observe, and measure—reduces that gap to around 6 percent at most.
If the gap tops out at that level, the question is whether this massively coercive gambit is worthwhile. It is exceedingly difficult to make these adjustments, and Harris’s proposal comes at a peculiarly inopportune moment. The hands-off policy of the Trump administration on domestic employment markets—in painful contrast with his meddlesome approach on international trade—has led to “screaming shortages” for skilled and unskilled workers alike. Employers are moving heaven and earth to offer not only wage and salary increases, but also a variety of perks to fill gaps in their labor force. Does Harris really believe that the forces of discrimination are so ingrained that firms, many of which are run by women, would reject or underpay women because of their desire to establish a male hierarchy that costs them both time and money? If there is some systematic and significant evidence of salary imbalance, she should demonstrate it rigorously before undertaking this massive regulatory initiative. Her use of uncorrected numbers is totally indefensible.
Yet note the extremes to which she is prepared to go. The current antidiscrimination law generally relies on private complaints to trigger unequal pay or employment discrimination investigations. In a booming market, most workers find it easier to switch jobs than to engage in costly litigation. Senator Harris fails to recognize that the low number of suits is a sign of healthy employment markets. Misreading the basic situation, she wants to reverse the traditional process by requiring all employers with over 100 employees to file annual reports to show that they have not engaged in any form of improper gender discrimination, with analysis broken down by race and ethnicity, under a set of regulations yet to be announced. She then tops that off by banning employers from asking about salary history, or using arbitration agreements, or stopping employees from freely discussing their pay. And she will impose this regime by executive order on all firms doing business with the government.
The implications are staggering for she posits a several thousand fold increase in government intervention. As the Wall Street Journal notes, there are over 100,000 firms with more than 100 employees. To make good on her administrative offensive, Harris has to address both ends of the labor market. Large firms have thousands of employees working in different locations at home and abroad. Of necessity, they have decentralized hiring decisions. How does anyone create a single index to measure gender discrimination? At the other end, detailed regulations will have to be adopted to determine whether mid-size firms that employ seasonal and part-time workers fall above or below the threshold line.
Unfortunately, she is oblivious to the inordinate demands of her proposal. She states: “To the extent pay disparities do exist for similar jobs, companies will be required to show the gap is based on merit, performance, or seniority—not gender.” Good luck with that. There is no easy definition of “similar,” “merit,” or “performance.” Studies of this sort require a detailed knowledge of the endless variations of industry custom and practice that goes far beyond basic job descriptions or company surveys. Nor ironically, is there any reason, given today’s already intense commitment to diversity and inclusion, to think that alleged discrimination cuts in favor of women and not men. Harris’s conceit is to think that anyone can, on a mass production basis, fine-tune her quixotic venture to justify a fine of one-percent of profits for each one-percent deviation from the ideal gender ratio. Based on 2018 net revenues, should Apple have to pay around $600 million in fines for each point it’s off? And what should be done with firms that operate at a loss, perhaps because of the high cost of compliance with her proposal?
Harris does not stop with an effort to commandeer every firm. She somehow thinks that the Equal Employment Opportunity Commission, the government agency that would oversee her proposal, will be sufficiently expert in its assessments of gender discrimination that it will be able to dispense advice to aid firms in their compliance efforts. She does not offer, of course, any estimate of the compliance costs that will be generated by this effort, but she is nonetheless confident enough to “estimate the plan will generate roughly $180 billion over 10 years, with revenue decreasing over time as strong equal pay practices become part of corporate culture.”
That number is just a wild guess, and the real tragedy would be if the EEOC’s draconian enforcement of the rules actually produced that amount of revenue. Permanent improvements in wages and salaries necessarily depend on increases in overall levels of investment. Harris’s proposal will take those dollars from private investment, which is bad enough, and put them into long-term public capital assets. This scheme is simply a transfer payment that will make it even easier for government agents to harass private firms, thereby inducing firms to shrink their operations.
The likely outcome, if this program should ever be implemented, is that we may well see some reduction in gender differences, with male wages declining more sharply than female wages. But the object of any reform should be to increase wages for women, without reducing those for men. Unfortunately, the only way to achieve perfect gender equality is by reducing wages for men and women. Yet somehow, Harris seems to think that her proposal will benefit families with two working spouses.
Why does this bizarre proposal have any kind of traction at all? The best guess is that candidates like Harris are emboldened by the ever greater fascination with socialism in key components on the Democratic left, led by Representative Alexandria Ocasio-Cortez. The hardline version of socialism calls for the collective ownership of the means of production, covering everything from airlines, banks, insurance companies, hospitals, and more. Such socialist programs always crash and burn because of two incurable defects: government corruption and government ignorance. State leaders siphon wealth off the top, and then badly invest what remains. As Jonathan Chait writes, this form of full-throated socialism remains deeply unpopular, garnering just about ten-percent of public support in its purest incarnation.
It is, therefore, a political necessity for the Democratic left to find ways to sugarcoat its efforts to exert government control, employing what I like to call salami socialism. Instead of asserting overt and total state control of the economy, progressives are finding ways to take over corporations one insidious step after another. Senator Harris is not the only practitioner of this time-honored practice. Senator Elizabeth Warren used the same technique in her ill-considered proposal to force all corporations with over a billion in assets to hold elections so that employees could name 40 percent of the directors of these corporations.
That proposal cuts deeply against core principles in corporate law. Directors owe fiduciary duties of loyalties, and they cannot be loyal to two sides whose interests are in conflict with each other, which is just what Warren’s plan proposes. Now just think of the negative synergies that would arise under the nightmare scenario where a Warren-style board of directors would have to devise a pay plan that meets a Harris-style EEOC diktat. Then pile on the other mandates being proposed in the progressive agenda dealing with climate change, education, health care, and unionization. Incrementally, private enterprises will become wards of the state.