- - Thursday, February 21, 2013

By June E. O’Neill and Dave M. O’Neill
AEI Press, $70, 312 pages

In his State of the Union Address, President Obama said, “I ask this Congress to declare that women should earn a living equal to their efforts, and finally pass the Paycheck Fairness Act this year.”

Mr. Obama should read the new book by June and Dave O’Neill, economics professors at Baruch College, City University of New York. Packed with data and clearly written, “The Declining Importance of Race and Gender in the Labor Market” brilliantly explains how differences in salaries of women and minorities are not due to employment discrimination, but to factors such as education and time spent in the workplace.

The O’Neills begin with the Emancipation Proclamation and continue to the Civil Rights Act of 1964. They trace the role of the Equal Employment Opportunity Commission and the Office of Federal Contract Compliance in anti-discrimination enforcement. Throughout, their work is precisely documented with an array of tables and graphs.

One would expect nothing less from the O’Neills. Both are preeminent scholars, authors of many articles and books on wage differentials, productivity and economic policy. June O’Neill directed the Congressional Budget Office from 1995 to 1999.

The book examines race and gender discrimination separately. The O’Neills conclude that “the factors underlying the gender gap in pay primarily reflect choices made by men and women, given their different roles in the family, rather than labor market discrimination against women due to their sex.”

Women frequently choose jobs that enable them to combine work and family. Many choose part-time work, with flexible hours, in the non-profit sector, that pays less.

When they choose the same work, they are paid the same. The most remarkable finding in the book is in Table 8-14, which shows that in a comparison of unmarried and childless men and women, women actually earn more — 108 cents on a man’s dollar.

The black-white wage gap is not due to differences in work preferences, but in differences in education. Using a detailed analysis of data collected by the Census Bureau and the National Longitudinal Survey of Youth, the O’Neills find that after controlling for factors such as age, schooling, English-speaking ability, part-time work, region and class of employer, the black-white wage gap practically disappears.

They “conclude from the analysis that labor market discrimination is not a likely cause of either the black-white or Hispanic-white wage gap among men.” The real reason is differences in education and continuous work experience. This means that reducing the black-white wage gap will require improvement in education for minorities.

The O’Neills’ work is especially important because Mr. Obama has just called for passage of the misnamed Paycheck Fairness Act as a remedy for supposed discrimination.

This bill would harm economic growth by inserting the government into employers’ compensation decisions. As the O’Neills show, the pay gap is mostly a statistical artifact, a false conclusion—and a rallying cry for feminist lobbyists who are well paid to advocate bills like this one.

Passed by the House of Representatives in January 2009, it failed to pass the Democratic-controlled Senate in 2010. There is no chance of enactment in the 113th Congress because the House has a Republican majority.

The bill would require all employers with more than two employees and $500,000 of gross revenues—no small business exception here—to submit data on sex, race, national origin and earnings of employees to the Equal Employment Opportunity Commission, even if no complaint has been filed. The threat of litigation about pay differences between men and women and minorities and whites would raise the potential cost of employment, discouraging hiring.

Employers would face administrative costs that would silently discourage the hiring of those who might catch the attention of EEOC investigators, particularly affecting unskilled, inexperienced workers who would start at lower rates of pay.

The bill would impose litigation costs on employers even as employees are represented with no out-of-pocket expenses by trial lawyers hopeful for a big slice of a big settlement. The result would be a perfect storm of lawsuits and uncertainty, adding to the estimated $300 billion a year America now spends on litigation.

Workers would be included in class-action suits against employers unless they specifically opt out, raising the costs of litigation whether or not the EEOC finds for the complaining employees.

Under the law now, employers found guilty of discrimination owe workers back pay. Under the Act, they would have to pay uncapped punitive damages, with a quarter or a third going to plaintiffs’ lawyers.

The bill would allow employers to defend differences in pay between men and women only on the grounds of education, training and experience — if these factors were also justified on the grounds of “business necessity.”

In order to find better solutions to wage differentials, read the O’Neills’ book. It could not have come at a better time.

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, is a senior fellow at the Manhattan Institute and author of “Regulating to Disaster: How Green Jobs Policies Are Damaging America’s Economy” (Encounter Books 2012).

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