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Free Markets

Why Are Business Owners Blamed For the Gender Pay Gap?

Former Editorial Director at Entrepreneur Media
4 min read

OK, business owners, let's have a show of hands. How many of you pay the women who work for you less than the men for doing the same job?

Anyone? Anyone? 

Of course not. For one thing, it's illegal. The Equal Pay Act in 1963 prohibited employers from paying less based on gender. More importantly, though, it is simply bad business sense. In a free market, companies rely on the quality of their workers to thrive. They need the best engineers, the best marketers, the best salespeople, the best managers and the best thinkers around them. Most are willing to pay top dollar for top talent. Gender plays no role in how much that paycheck is.

Related: The Myth of the Have-Nots

And yet we continue to hear the business community criticized for the so-called gender pay gap. Women, we are told, make 77 cents for every dollar earned by a man. That gap is unfair and must be eradicated. To do that, we must punish businesses that pay someone less simply because of which restroom they use.

The trouble is, that statistic isn't true and doesn't even take into account the realities of the workforce. You come up with that gap figure through the simplest of math. Take all the wages earned by men, then subtract all the wages earned by women, and -- voila! -- we have a gap.

But there are plenty of reasons why that gap exists. There are differences in career paths, particularly when you see gender differences in college majors. Many women choose college majors that lead to professions that naturally pay less. Then there are life choices. Women have children and often take time off from their careers -- and earning ability -- to raise them. That doesn't mean that they lose out completely financially, either. There are ways to manage that process to ensure they don't lose ground in pay, but it is natural that people out of the workforce for a period of time, or who are working part-time, would make less.


What we don't see, however, are businesses wilfully paying one gender less than another. Yet, the policy response is to punish business, not explore and accept the sociological underpinnings of any mythical gap. Take the political theater this week over the Paycheck Fairness Act, the Democrat-sponsored bill that would increase penalties for violations of the Equal Pay Act. Right now, employers can battle claims of unfair pay by citing factors other than gender for paying someone less money. The Paycheck Fairness Act, which was blocked by Republicans, would have required that employers use "bona fide" factors, like experience, to make their case. What is considered "bona fide" is narrowed, and takes away a lot of the hiring flexibility employers now have.

Worse, the bill raises the financial stakes for the businesses, by allowing more damages in lawsuits and opening up these cases to class-action status. It is a boon for lawyers, and a cost nightmare for American companies of all sizes.

The academic research into the pay gap is not turning up reams of evidence that the business community is intentionally paying women less, so why is there a need for more law and regulation targeting them? And, if there are real, sociological reasons for pay differences, is this even a gap worth minding?

Of course not, but the debate is brought to you by the same people who say that businesses don't pay anyone enough, so we need to shame companies into raising wages, or, G-d help us, pass laws that require higher pay. All the while, we lose sight of the decisions the employees themselves, who are making choices in their lives and in the way they work that affect how they are compensated.

Worst of all, we know that, despite historically high joblessness, many independent businesses are stuggling to find qualified candidates to fill their open positions. Entrepreneurs have problems building their teams. In many cases, pay is the least of their worries.

Yet, these entrepreneurs and business managers are the ones getting the blame and facing the legal and regulatory risk.

It's time to face facts. Most successful businesses pay fairly and pay people what they are worth. They are gender-blind, color-blind, religion-blind -- in fact, blind to everything but performance. When you work hard and work successfully, the pay follows. That is how the true free market regulates commerce. That's something men and women can surely agree upon.

Related: How the New Obama Overtime Rules Will Squelch Opportunity

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