Just when I thought I was out, they pull me back in. I was recently consulted to co-author a discussion paper on the Belgian gender pay gap law. We plan on adapting and translating the note to Dutch, but following up on the conference on gender inequality set up by a high-panel commission supported by the ILO, I want to reflect on a few economic ideas. Indeed, my area of interest is inequality, and I regard gender inequality as another expression of how social forces at the micro level shape our labour markets and societies.
The gender issue can be approached in different ways: a) as a power conflict, b) as a cultural issue, c) as a major economic flaw, and d) as minor economic flaw. Let me be brief on the first two: it was said before and repeated at the conference that "men are the greatest kartel in the world". That, for me, is hate speech. We also hear that "men are beaten by women in the field of education - which is
a reason for optimism". That, again, is sexism. The aim should always be fairness and equality, not a battle of genders. Secondly, it is of course true that most societies appear paternalistic. It suffices to listen to the discourse by Trump and Putin, and the ideas among conservative voices in Europe, to understand that this is a fact. Appearance and reality are slightly different though. It was said that women make 90% of the household consumption decisions - a figure which I highly doubt, but below the surface, the power must be larger than how it appears in the discourse. I also believe this is the case in the Arab world, and one reason why we overact in the current rhetoric of a clash of civilizations. Or put otherwise, if it wasn't so that women have more leverage than it is portrait, then by all means women should take the arms and fight for it to happen. More important than social norms and culture, which are always oppressive, is the individual liberty to adhere to them or not. In that sense, the feminist fight for equal rights is exactly the same as the liberal individualism that developed after the French Revolution. Morally, we're on the same line. However, I do not believe this is the core of the debate today in developed welfare states.
Another approach to gender inequality is to regard it as a major economic flaw. There are two opposing narratives on this which I find equality ridiculous. The first is the often quoted figure based on a study by McKinsey that if women have an equal labour market position than men, global gap would increase by 26%. In other words: we would produce a quarter more than we do today. I do not share the general criticism of gdp as a limited metric. Of course this criticism is true, but the limits are in its interpretation. Yet I don't like the McKinsey figure because, as much as it may be true, we know that there will be a substitution of informal by formal work, so that we will not produce a quarter more. Moreover, how will this quarter be distributed. Feminists regard the female labour force participation as an unambiguous gain, but if you think about it: in the traditional paternalistic single breadwinner model, the income of men sufficed to provide for the family needs. If that wasn't the case, our race would have disappeared. Yet today, many families need dual incomes, and if work intensity is low, rely on social benefits. This means that the real income of men has decreased - in part because of a labour supply increase, but likely more because of additional pressures - and that there is a larger producer welfare surplus that would have to be shared. However, we know that this does not happen, hence the inequalities in the world today. As such, the feminization of the labour markets is not a guarantee for welfare maximization, let alone for a better position for workers. The McKinsey figure carries in it a danger.
The second narrative that addresses the gender issue as a major economic flaw is the debate on value. In fact, the definition of value is one of the greatest economic puzzles, and I will not pretend to have solved it. Yet, let's falsify the argument as it is put. It is said that the work of women is undervalued, because the market only desires profit. I would say those are two different things. It may be true that the work of women is not valued on the market, because externalities are not accounted for. For instance, care and education have important social and economic multipliers, but the direct consumer does not want to pay for this. A very simple solution is to publicly provide these services of general interest, as even Smith would agree on, and as is the case in most welfare states. Neoliberalist politics wants to commodify these services and privatize the provision. If we're not interested in the sell-out, but want to value this type of work, that women prefer to do more than men for whatever reason, it should be pulled out of the market. The market itself, in so far as it is not perverted because of negative externalities, will still create and assign value by the invisible hand. It is manifestly impossible to deliberately measure and compare all aspects of a job, including all tasks, skills, and social value. It is even useless and to live in such a world would be the end of humanity. Still, it has been argued that a 'value portfolio', an instrument that apparently exists, would highlight undervalued assets, of which women should have more. It can only be that the test of this measure is seriously confounded: indeed, some skills may be undervalued, but not its social contribution. This feeds back into my first point: if the market does not value something, it should be solidarized. I will relax this position slightly in what follows, but by no means implying that because we love the person that does the cleaning, and because cleaning is societally important, the wage of the cleaning personnel should be way above average. Why not? Demand would, of course, plummet. This is not even a marxist argument: there is no morality in Marx definition of value: the only thing he suggests is that a) the value is ultimately based on labour, which is human time (but in a competitive spirit - there is no more value if you have been wasting time), and b) that part of the value created is stolen by the capitalist, who takes away the surplus profit, which is the difference between the pay for the worker, needed to provide subsistence at best, and attract enough personnel at worst, and the market value of the product. In a perfectly competitive market, this may all be the same, but when there is some monopoly power, the social relations enter the distribution of productivity gains. In short, it does not in any way support the feminist argument. If you bring the points together, though, you may propose a state-organized economy where you exclude market checks, and assign income based on (democratic) valuation. Most likely this kind of economy will underperform, because it does not provide the right incentives.
Hence we are left with the fourth approach:
gender inequality is a minor economic issue. That is to say: it is easy to solve, and for this we need not change the laws of economics. Hurray! To begin, we know that in most countries, the state sector does not have an important gender pay gap. Yet this may reflect the first argument: the state sector does not have the same competitive pressures as the market, because it's
primary locus of control is democratic, not financial. In the previous point, I suggested it is unlikely that it is desirable or possible to organize the full economy democratically through the state. Hence, what to do with the market economy? One option is to fully deregulate the labour market. This is where inequalities arise and therefore also gender inequality. It is a standard case of discrimination, and not well understood. The default take on this matter is that discrimination is irrational and inefficient. Firms that discriminate against female workers (or any other specific group, be it young people, migrant workers, etc.) would perform worse, an as a result disappear over time. On the other hand, sometimes discrimination is needed (e.g. mannequin), or it could be profitable. For instance, if a workplace is perfectly homogenous in terms of ethnic origin, religious conviction, or gender, and if the subculture around it are important social constructs, then worker heterogeneity may come at, at least, a short term cost of adaptation. In the long run, companies that rely on inequality to grow, cause inequality itself to grow, and will be less resilient for challenges (i.e. a sudden preference for dark haired waiters instead of blondes, or the necessary employment of a few men to do tasks that cannot be undertaken by the women, so that the homogeneity is broken either how). We cannot, however, impose quota easily, pretenting to know what the gender ratio should be in every single enterprise, nor can we risk to allow entirely free wage negotiations, as irrational forces may play out as well.
We need, then, a regulatory framework within which individual liberties exist. Collective bargaining is such a model. In collective agreements wage floors are set based on characteristics required by the function. All else is economically irrelevant, but may be psychologically tempting - from the old boys networking to the attraction of young women. It may indeed still be that the views also exist amongst representatives of employers and employees, but it is much easier to challenge this collectively than it is to impose morals and bargaining skills on every individual worker. Collective agreements save us the trouble of having a thousandfold of negotiations. Yet, the main purpose is to define a sectoral lower limit, which should still be economically feasible for well-performing firms (if not, they should not sign the agreement), livable for the worker, and adaptive to specific needs of firms. If you think about it, and look into the hundreds of agreements countries with collective bargaining have, this system is not nearly as rigid as it was viewed, and indeed very sensible. More importantly: it protects weaker groups on the labour market that are at risk of having wages being pushes below equilibrium, or just outright too low.
The system I described, which is the most common system of institutional wage bargaining, is sectoral. One direct effect is that collective bargaining creates more equality for workers that are covered. This may imply a transfer from workers with a higher earnings potential to workers with a lower earnings potential - for instance when
not in the monopsony case. Another direct effect is that in sectoral negotiations, it is straightforward to distribute the rents to workers. However, the rent distribution creates inequalities between sectors, and hence if the same function is done in different sectors, unequal pay for equal work. The alternative is a guild system, where wages are strictly determined by occupation. I see this as an exchange of general equality for specific gender equality. It may ultimately result in a higher share of female workers in precarious position - but equally much as male workers. My conclusion would be on the one hand pragmatic - share the rents among workers - and more open, as we should perhaps rephrase 'equal pay for equal work' or 'equal pay for equally valuable work' to: 'equal pay for equally
valued work'. Take the example of an accountant working for a theatre company, and another working for a multinational arms dealer. Depending on personal views, the motivation to work in the cultural sector may express a value that is not reflected in the wage, but clearly taken up by the worker in his assessment of total utility. So, again, this is a
minor economic issue.
Let me conclude this point by another economic issue that collective bargaining may solve. A fairly new point of view. It is possible to have a limitation or an upper margin for wage growth over all economic sectors, like in Belgium. What happens then is that when productivity increases beyond that rate, in a way profits go up. However we have seen that increasing wage floors imply that workers with with a low earnings potential need to find compensation elsewhere in the wage distribution, if not employment is threatened. No many sectors are in fact strongly related's and dependent upon each other. For instance accommodation and catering depend on tourism, but also on meetings conferences etc. So when at first there is division of economic activity over sectors and in particular sectors wages gets Notes because of non-increasing productivity, self-evidently enter sectoral wage differences increase. With such a system as a wage increase ceiling or away each norm as it is: Belgian, what we have is that extra profits are separated and may be transferred to precisely those industries that do not have the productivity increases. It is ultimately depends on the demands inelasticity for those services or goods but what happens is that demand does not fall back as would have in case costs would have increased in the sector at hand. The result of the system is that's into industry which differences remain limited and social relations remain reflected is within the wage distribution. This echoes a fascinating statement by Hicks (1955), quoting Clay, in which he says that there is some sentiment of just wage differences. more precisely his point is that when wages are changing there is a tendency for convergence. Simply put: if there is an increase of revenue it is generally perceived as morally correct to at least pay the lower wages more. What collective-bargaining does is institutionalising these attitudes. In absence of it, by means of distraction, and through psychological irrationality, we would continuously have to adjust, criticize, and debate inequalities and worry, such as the concerns of the feminist movement.
To end, even if collective-bargaining is really importance in institutionalising social relations, this is still within the legal and regulatory framework. Some issues do you have to be dealt with at that level. Probably the best example is maternity leave which are paradoxically plays against women. It interrupts careers so that at around age of 30 we see a divergence is of the wages of the women and men. Worse even, because of the new certainty that's female employments within the firm Will creates uncertainty, the employer me rationally choose not to invite women on a recruitment interview. The only option is done also mandatorily require men to take up paternity leave for exactly the same amount of time as the woman. I do not know in what way two day legislation a wireless maternity leave to one of the partners in a male homosexual relationship when they adopt a child or have one through a carrying mother. It would only be fair that both partners enjoyed you seen rights. Of course this would also imply that male wages for the paternity leave. Hence in two ways, to lower wages for men and an increasing chance to get invited on a job interview, paternity leave for simple economic reasons restores gender equality.
As economist Lucie Davoine correctly says it:
the gender pay gap is not complex. However, bringing together insights from many different fields leads to many misunderstandings, and often a debate about the approaches and not about what to do. To play the economics card is then often an unpopular option, and mostly regarded as the very cause of the gender pay gap, which, after all, is an economic metric. Strangely, many feminists then conclude to avoid tackling the roots in the field of economics, and propose a plethora of other measures, often political and normative. This goes beyond the structural cause of inequalities. I recognize that norms and feelings are essential to the create the economic world, but I would say that the idealist view that values change the world is totally flawed, and here Marx is very correct in inverting the relationship: value follow from structures. After 50 years of soft feminism, and probably little success beyond having libraries full of literature and a topic for discussion around the table amongst those women with the time for exploits - which I believe is very perverse - it is perhaps time to really do something for equality.
