The Streets are not paved with hundred dollar bills.

Which is just a colorful way of saying, easy profit making opportunities do not sit unexploited for long. If there is a hundred dollar bill on the ground, someone will pick it up, certainly before the dropped bills can coat the road like fresh asphalt. This seems trivial, but it has important implications because many people don’t seem to grasp the lesson this obvious fact offers.

For example, many people actually believe that employers get away with paying women only about three quarters of what they pay men to do the same work-and on the basis of believing this, they advocate making it easier for women to sue employers over alleged pay discrimination. But consider what it would mean if this were actually true: the cost of employing a man to do a job rather than a woman would amount to a massive forgone profit by any employer. The streets could be paved with the hundreds of dollars employers supposedly willingly give up for the sake of employing men! An entrepreneur could build a successful business model on the singular idea that he will only hire female employees-or at least, hire female employees to do the hire paid positions, it might raise eyebrows if he employed that many more women than men in total. At the very least, though, at the margin, when considering whether to hire an additional employee or not, women would have a distinct advantage in terms of the probability they would get the job over a male candidate for the same job.

Of course, obviously none of that is actually the case. What gives? Well what gives is that the claim that there is a massive employer gender discrimination epidemic is a big fat lie. It’s a big fat lie that women make much less money for the same work. In point of fact, the average woman makes significantly less money than the average man (working full time). This raises the interesting question: what is an average job? How do you take the average of a doctor and a retail sales worker? You can take the average of their pay, but you can’t take the average of the jobs themselves. There is no average job. But if there was an “average job” it would not entail the same work for the average man as it would for the average woman. Like it or not, men and women tend to go on different career paths, and men tend to go into career paths that will ultimately compensate them more than those chosen by women. It’s entirely possible that this is a result of discrimination of a kind. But the discrimination does not take place during a job application. It takes place, if it does at all, during the woman’s education at a young age almost certainly in a public school. It makes no sense to say a woman ought to be able to sue an employer because her teachers encouraged her to go into a lower paying career. Of course, they wouldn’t-they currently have the ability to sue, in fact, the proposed legislation is actually to extend the statue of limitations, as I understand it, but it’s already illegal to discriminate in pay on the basis of gender. But because they wouldn’t, lawsuits won’t do much to reduce the pay gap, since very little of it might actually be due to discrimination. Most of it is explained by different educational and career paths, different choices about how much work to do, whether to leave work and have children-which in turn requires different choices of about one’s career path and negatively impacts one’s work experience relative to men. It’s telling that even without accounting for different jobs, there is a significantly smaller gap in pay between men and women that were never married and have no children than all men and women. Accounting for many of these factors will typically, in the literature, narrow the gap from 23 cents on the dollar to just 5 cents. 5 cents are left to possibly be due to discrimination, and possibly due to other factors that are difficult to account for or quantify. I know it seems an outlandish, blasphemous possibility to those who believe it to be an absolute fact that women are every bit the perfect equals and substitutes for men in all ways, but you know? It’s actually possible women are just 5% less productive than men! Horror of horrors. But considering that discrimination is already illegal, I’d offer another possibility. Ironically enough, employers may pay men more because risk of getting sued makes female employees a liability. I can’t really say which of these suggestions, or other possibilities, is the most likely explanation. I do think, however, that this is an incredibly flimsy case to build legislation to make it easier to sue employers on.

Another example would be the theoretical case people build the possibility of a minimum wage actually improving employment on. The idea is that there is widespread “monopsony” power in the labor market. Monopsony is basically a market imperfection opposite of a monopoly, where instead of one person on the supply side of the transaction and many on the demand side, there is one person on the demand side and many on the supply side. It should be quite obvious that a literal monopsony can’t prevail in any labor market, since there are clearly multiple employers for basically any job. But some proponents of a hire minimum wage argue that it does, in effect prevail in low and unskilled labor markets. As it turns out though, if this actually were true, it would in fact constitute another case of foregone profits! Why? Because implicitly, the employees of a monopsonist are paid less than their marginal product. While this may be a way for the monopsonist to increase his profits-but only if those are not competed away in his role as a supplier of the output, in the form of correspondingly lower output prices-a prospective competitor can take advantage of the situation by picking off underpaid employees from the monopsonist, by hiring them at wages that are slightly higher-keep in mind that all of them have marginal product greater than their marginal cost currently by assumption, so you should be able to profit all the way up to paying them their actual marginal product. In other words, people who believe this monopsony problem exists, could get into business and make good money, at the same time as doing good for the low skilled workers they claim to care about. One doesn’t need a law to mandate higher wages in such a case, they could do it themselves. And yet, tellingly, they decline to do so. Equally tellingly, no entrepeneurs seem inclined to capitalize on this “knowledge” even if they would be in a better position than the academic who believes this to be true-and be sure that there are people who could start such businesses, or own existing businesses, who must be aware of this alleged “fact.”

Belief in either, but especially belief in both of these things, amounts to a belief that the streets are paved with hundred dollar bills. But it’s just common sense that this isn’t the case.


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