Maclean’s debunks the wage gap

The current issue of Maclean’s magazine bemoans the male-female wage gap in a clever way, charging different prices at the newsstand for men and women. “Pay equity: One magazine at a time,” its cover reads. And it goes on: “This month women pay $6.99” for the issue, but “men pay $8.81.” The difference mimics the “shocking 26 per cent pay equity gap between men and women that still exists in Canada.”

The prices come with an asterisk that leads to fine print at the bottom of the page: “In practice, newsstand customers can of course purchase whichever cover version they want. Extra proceeds from the sale of the men’s cover will be donated to charity.”

The intention is to show the humiliating unfairness of different prices for different sexes for exactly the same product. Unwittingly, what the gimmick really does is demonstrate why the idea that such discrimination pervades competitive markets is bogus. In effect, Maclean’s makes most economists’ case for us.

Think about it. The same magazine — exactly the same magazine, there’s no difference in content — has two covers, one charging women $6.99, the other charging men $8.81. And people are free to choose between them. Is anybody going to buy the $8.81 version? If you’re a feminist male politician, our prime minister for instance, and the cameras are rolling, then maybe you will, jokingly emphasizing your contribution to charity. But if you’re a normal person, you don’t. You buy at $6.99. That’s how markets work. You can’t sell exactly the same product at two different prices at exactly the same place and time.

So suppose now you’re in the market, not for magazines, but for labour, and you have the chance to buy female labour for $20 an hour or male labour for $25.20 an hour and the labour each one provides is exactly, exactly the same. What do you do? Suppose for some reason you think men deserve jobs. So you employ men for $25.20. You’re going to get cleaned by your competitors, who will hire women at $20 an hour and produce exactly what you’re producing, except they can sell it cheaper since their labour costs them less. It’s “the law of one price”: identical goods can’t be sold for different prices.

If you do see different prices for what looks to be the same labour, that means one of two things. Either it isn’t really the same labour, hence economists’ efforts to see whether differences in age, experience, labour-market attachment, exact qualifications and so on explain the wage gap, which in large part they do. Or the market in question isn’t competitive, so owners can in fact indulge their preferences for one sex over the other.

It’s no accident therefore that the main examples of wage gaps Maclean’s points to all occur in the (non-competitive) public sector. Thus, often-female civilian employees of the Ontario Provincial Police make less than the often-male ex-active-duty cops moved to identical desk jobs later in their careers. This is the result of a union agreement with the employer, i.e., the government, that allows the uniforms “to reap the same salary bumps and benefits as the boots-on-the-ground officers.”

If there were competition in police forces, it would be hard to pay such premiums to uniformed desk workers. Police forces that didn’t would undercut the price of police forces that did, driving them out of the market. But of course we don’t have competition in police forces so discrimination of this sort is possible.

Similarly, at Canada Post, with its monopoly on first-class mail, “rural and suburban mail carriers earn about 30 per cent less than urban employees.” Women are 70 per cent of rural and suburban carriers while men are 70 per cent of urban carriers. Another difference between them is that urban carriers have long been unionized, while rural and suburban carriers unionized only in 2009. With its rural and non-urban workers, Canada Post presumably paid what the market demanded for labour of the quantity and quality it needed. With its urban workers it got held up by the postal strikes with which we all became so wearily familiar before competition from messenger services and email reduced the unions’ power to extort.

A third example involves Ontario midwives, whose salaries top out at about $100,000 a year while doctors in clinics make about $200,000, according to Maclean’s. If midwives really are as productive and reliable as doctors then, in a competitive market for health care, their salaries would be driven to equality. In a market with only one buyer, however, anything goes.

Equal pay for work of equal value? In a competitive market, if the work is paid the same, it’s of equal value. If it isn’t paid the same, it’s not. If you really want pay equity, make more markets more competitive.