The Apples and Oranges Tribunal

By Alex Tabarrok.

"Suppose that apples sell for more than oranges and Parliament in it’s wisdom decides that, at last, apples and oranges must be compared. Not by shoppers — shoppers are biased, they merely reveal what they are willing to pay — but by a tribunal, which will determine whether apples and oranges are of truly equal value and thus must sell at the same price.

What would the tribunal need to know?

Start with land. Orange groves sit on Florida real estate with one set of alternative uses; apple orchards occupy Washington hillsides with another. The opportunity cost of an orange includes the housing development, the solar farm, the tourist attraction not built on that grove. How is the tribunal to value what was never built? Perhaps you answer: look at land prices. Brilliant suggestion, I reply. Keep going.

Next, capital. Orchards take years to mature, so today’s fruit embodies investments made under yesterday’s expectations about today, financed at interest rates the tribunal must somehow incorporate. Then storage: apples keep, oranges rot, so an apple and an orange in April are different goods than the “same” fruits in October. Add transportation, refrigeration, frost, pests, crop insurance, the option to divert fruit into juice, cider, marmalade, or pie, substitution with every other item in the produce aisle, and the shifting preferences of millions of consumers, each of whom knows things about his own breakfast that he could not articulate to a tribunal. It all matters.

To determine the “just” price of apples and oranges, the tribunal would need the entire general-equilibrium system.

Market prices are necessary to compare alternative uses of resources, as Mises taught us in 1920. In 1945, Hayek added the knowledge problem: the relevant knowledge is dispersed, local, tacit, and fleeting. Free markets are the only institution that aggregates that knowledge, articulates it in prices and gives people a reason to listen and respond. A price is a signal wrapped up in an incentive. Apples and oranges can be compared but only by the incomparably complex operations of the price system. There is a reason we call it the super-market.

Britain is now running this experiment in the labor market–A retail worker equal to a warehouse worker? A canteen worker equal to a coal miner? A dinner lady equal to a gravedigger?

Under the Equality Act’s “equal value” provisions, tribunals compare jobs by scoring their intrinsic properties — effort, skill, responsibility, working conditions — the labor theory of value applied to labor. How is it going? The Tesco litigation began in 2018; the tribunal’s fact-finding hearing ran 36 days, its judgments run to more than 900 pages resting on some 19,000 pages of training manuals, and the independent experts have yet to begin the report that will actually say whether a shelf-stacker’s job equals a warehouse worker’s. Eight years, and the calculation has not started. Apples and oranges, adjudicated but not, as Orwell or Marx or Stafford Beer might have imagined, by a industrial bureaucracy or by an all-knowing artificial intelligence but by lawyers and commissions and tribunals. The worst of all worlds.

And having discovered that the tribunal cannot price two jobs in a decade, the government now proposes to add race and disability comparisons and an enforcement unit to publish official guidance on which reasons for a wage difference are permissible. A bureau of allowable scarcities.

Moreover, let us say that one day the tribunal reaches its conclusion and finds the truly just apple to orange price. At last, nirvana. The next day the public learns that vitamin C really does combat cancer–the demand for orange juice skyrockets. To encourage more orange juice production we need a higher price but wait…nothing about oranges or apples or the labor required to produce them has changed. We need to attract more labor to the orange juice industry but the effort, skill, responsibility and working conditions of orange juice workers has not changed. How can we justly pay them more than their apple juice brethren? Blank out.

The market compares apples and oranges every day. It is the only institution that can. But there is a deeper error here than computation. Suppose the tribunal succeeded. Suppose that after another decade it delivered the true and final score, shelf-stacker versus warehouseman. What would it have found? Not justice. A wage is not a grade on your character or a measure of your worth as a human being. A wage is a price — a report on how scarce your skills are relative to the desires of people you will never meet. Nurses are not morally less worthy than plumbers should they earn less than plumbers or vice-versa, and no one thinks otherwise except the tribunals.

Hayek nailed it in The Mirage of Social Justice: justice is about conduct — how one person treats another. An employer who defrauds his workers, an employee who steals from the till, a product sold under false pretenses — condemn them, take them to court. But the pattern of prices that emerges from millions of voluntary trades is nobody’s conduct. No one chose it, no one designed it, no one can be guilty of it. The constellation of prices is, in Ferguson’s phrase, the result of human action but not of human design. Demanding that prices be just is a category error, like suing the weather. Prices don’t grade our merit; they guide our actions. Ask them to do the first and they can no longer do the second.

Judge Anthony Kennedy said it well in the Ninth Circuit ruling that (mostly) killed comparable worth in the US: “neither law nor logic deems the free market system a suspect enterprise.”"

The Equal Pay Madness Just Got Madder

By Alex Tabarrok. 

"In my post Equality Act 2010 I discussed the UK’s absolutely insane wage policy:

In short, supply and demand have been replaced by judges and labor boards with the authority to deem which jobs are “equal” and therefore should be paid equally….No one is alleging that male and female warehouse workers were paid unequally or that male and female retail workers were paid unequally or that there was any direct or indirect discrimination. The only claim is that warehouse workers, who are less likely to be female than retail workers, earn more than retail workers. And since these jobs have been judged “equal,” the company has violated Equality Act 2010.

…The warehouse workers were almost 50% female (47.25%). So females were not barred from the higher paying jobs. The fact that 77.5% of the retail workers were female suggests that retail work has special appeal to females relative to males and thus that there are compensating differentials. Any of the three female plaintiffs could have taken jobs in the warehouse. If the jobs are equal and the warehouse jobs pay more this is, on the plaintiffs’ theory, “puzzling”. [Or, as Ayn Rand would say, blank out.]

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

Well, here is the update. The outgoing Keir Starmer government is trying to massively expand these laws. The “equal value” framework previously applied only to sex discrimination; under the proposed law, employees could also bring equal-value claims based on race and disability. Remember, these laws have nothing to do with discrimination—they are about demanding, at the point of a gun, that apples and oranges sell for the same price because they’re both fruit.

The new law would also establish an Equal Pay Regulation and Enforcement Unit. As I said, Orwellian.

See also my post, How Britain Become as Poor as Mississippi."

Does Competition Reduce Discimination?

Evidence from College Football

By Jeffrey Miron. 

"A standard economic view holds that markets will moderate some kinds of discrimination because “profit” maximizing organizations will recognize that discrimination is costly to their bottom line or other goals.

A recent study looked to the integration of college football in the 1970s for supporting evidence. By comparing conference-wide rankings and team win percentages before and after a team integrated, the study found that

poorly performing teams, potentially seeking to improve their win rate, choose to integrate.

Also,

worse teams were more likely to integrate than better teams… A likely explanation … is that poorly performing teams integrated to attract talented players.

These results indicate that

firms with low profits stop discriminating, or discriminate less, in a bid to increase profitability.

Somewhere, Gary Becker is smiling."

Chicago mayor proposes reparations to reduce high crime rate, but reparations do not reduce crime

By Hans Bader. Excerpts:

"On December 30, Chicago Mayor Brandon Johnson called for reparations as a way of reducing Chicago’s high crime rate. But reparations have never succeeded in reducing the crime rate. Crime increased in nations such as South Africa and Zimbabwe after they began redistributing wealth from whites to blacks."

"Reparations do nothing about violence, however. South Africa has handed out more reparations than Johnson is proposing, yet South Africa has one of the world’s highest crime rates. It has the world’s highest rape rate, the third-highest murder rate in the world, the world’s highest robbery rate, and the world’s highest burglary rate.

South Africa effectively instituted reparations years after the end of its apartheid regime, passing “black economic empowerment” legislation in its overall economy in 2003, and in government contracts in 2000. For example, Time Magazine notes, South Africa passed laws “mandating minimum Black-owned stakes in businesses” and requiring “affirmative action.” Reparations did not bring prosperity: South Africa now has “an unemployment rate of more than 30%.”

South Africa’s homicide rate in 2021 was slightly higher than in 2003, when South Africa passed its BBBEE (primary reparations) legislation, and only a bit lower than in 2000, when it enacted affirmative action in government contracts. By contrast, the world homicide rate has fallen since 2003, and fallen even further since 2000.

The African nation of Zimbabwe pursued a much more expansive policy of reparations than South Africa, seizing essentially all white-owned farms (80% of Zimbabwe’s agricultural output was from white-owned farms) and giving them to blacks.  It wrecked its economy by doing so, resulting in hyperinflation and leaving even its black population worse off.

It also did nothing to reduce crime. In Zimbabwe, the homicide rate doubled from 1990 to 2001, the period when the government decided to seize the country’s white-owned farms. In 2021, its homicide rate remained slightly higher than it was in 1990. By contrast, the world homicide rate fell from 1990 to 2020.

Mayor Johnson may think that reparations will reduce crime by cutting poverty. But even if reparations did cut poverty — rather than increasing poverty, as happened in Zimbabwe — that would not cut the violent crime rate. Crime is higher among the poor not because poverty causes crime, but because irresponsible behavior leads both to crime and to poverty. In poor countries, where most people can’t help but be poor even if they are responsible, the crime rate is often lower than in the United States. India has both a lower crime rate and a lower murder rate than the United States, even though more than 14% of all Indians don’t get enough to eat, India has one of the worst child malnutrition rates on Earth, and India’s per capita income is only about $2,500, compared to over $75,000 in the U.S.

There is a simple “roadmap out of poverty” that works for poor Americans of any race, according to the black economist Walter Williams: “Complete high school; get a job, any kind of a job; get married before having children; and be a law-abiding citizen. Among both black and white Americans so described, the poverty rate is in the single digits.” People who don’t follow that roadmap are more likely both to become poor, and to turn to a life of crime.

But people who can’t help but be poor — like recent immigrants from very poor countries — often have low crime rates.  Impoverished refugees from Communist China had very low crime rates. As Professor James Q. Wilson, an authority on public administration, once noted, “During the 1960’s, one neighborhood in San Francisco had the lowest income, the highest unemployment rate, the highest proportion of families with incomes under four thousand dollars a year, the least educational attainment, the highest tuberculosis rate, and the highest proportion of substandard housing. That neighborhood was called Chinatown. Yet, in 1965, there were only five persons of Chinese ancestry committed to prison in the entire state of California.” See Crime & Human Nature: The Definitive Study of the Causes of Crime (1985).

Reparations activists want blacks to receive enough reparations to eliminate the gap in wealth between blacks and whites. They mistakenly assume that gap is the result of racism. But it isn’t. Racial gaps in incomes and wealth exist for reasons other than racism.

Slavery and discrimination are not the cause of present-day racial disparities in wealth. Most wealth is not inherited, and most of the wealth gap between whites and blacks is not due to inherited wealth. Non-white immigrants from Africa and Asia commonly earn more than whites do, showing that racism is not a barrier to success. Asian Americans have the highest average net worth and highest average income, despite harsh discrimination against Chinese and Japanese Americans in the past.

Past discrimination did not cause present-day racial disparities in wealth or income. Asians once were subjected to massive discrimination, yet today, they have higher incomes than whites. As the New York Post notes, “several historically marginalized groups out-perform whites today. Take Japanese Americans, for example: For nearly four decades in the 20th century (1913 – 1952), this group was legally prevented from owning land and property in over a dozen American states [including California]. Moreover, 120,000 Japanese Americans were interned during World War II,” which forced many interned Japanese people to sell their businesses at fire-sale prices, ruining them. “But by 1959, the income disparity between Japanese Americans and white Americans nearly vanished. Today, Japanese Americans outperform whites by large margins in income statistics, education outcomes, test scores, and incarceration rates.”

Reparations may not fix the racial “wealth gap” anyway. Many people just spend windfalls they receive from the government, rather than saving or investing the money. When Uganda seized the businesses of Indian immigrants without compensation and gave them to blacks as reparations for colonialism, the businesses did not last for long afterwards, and Uganda’s economy collapsed. When Uganda let Indians come back to Uganda and set up businesses again 14 years later, Indians once again ended up dominating Uganda’s economy, even though they had to start from scratch."

Can Right-To-Work Laws Reduce Hiring Discrimination?

New research shows that right-to-work laws are associated with a substantial reduction in hiring discrimination for older women.

By Vitor Melo of Mercatus. Excerpt:

"A large literature in economics suggests that right-to-work laws weaken union membership rates and revenue, thereby reducing their ability to negotiate compensation floors above market levels.

For example, imagine a company is looking at two job applicants. The first applicant can produce work worth about $5 per hour, and would be willing to accept $4 per hour to do the job. Without a compensation floor, the company might consider hiring this person. But if there's a rule set by the union mandating that everyone must be paid at least $8 per hour, now the company wouldn't hire anyone whose work is worth less than that amount. On the other hand, if another applicant can do work worth $10 per hour and is willing to accept $9 per hour to do the job, the company would probably still hire them, even with the $8 minimum in place.

This example illustrates how a compensation floor is expected to decrease the hiring of applicants who are perceived to have lower productivity than the compensation floor. 

If older workers are more likely to have lower perceived productivity, the number of job offers they receive will be reduced further than the number of offers that younger workers receive. 

Right-to-work laws are expected to decrease union strength and thus decrease unions' ability to set compensation floors above equilibrium levels. This reduction in compensation floors is expected to increase the number of job offers that older workers receive more than the number of offers that younger workers receive. This means that right-to-work laws are expected to decrease discrimination against older workers.

In our forthcoming working paper, we explore evidence from a national field experiment examining age discrimination in all US states. We find that the presence of right-to-work laws counteract about one-third of the baseline discrimination against older women (aged 64-66) compared to younger women (aged 29-31). 

This means that both our theoretical and empirical analysis point to a single result: reducing union strength via right-to-work laws will lead to substantial reductions in labor market discrimination."

Will the Pregnant Workers Fairness Act Help Pregnant Workers?

By Vanessa Brown Calder of Cato.

"Late last year, Congress passed the Pregnant Workers Fairness Act (PWFA) as part of the sprawling 2023 Consolidated Appropriations Act. The PWFA requires that employers provide reasonable accommodation to pregnant workers, and in June, the Act went into effect.

Ensuring pregnant workers are accommodated appears a worthy goal, and Democrats and many Republicans supported the legislation. Nonetheless, there are some reasons to worry about the legislation’s effects.

Pregnancy discrimination is already illegal due to the 1964 Pregnancy Discrimination Act, but the PWFA goes a step further and requires that employers provide accommodations to pregnant workers. In this way, PWFA is similar to the Americans with Disabilities Act (ADA).

The PWFA even uses the same “reasonable accommodation” definition as the ADA. Under this definition, reasonable accommodation requires employers and employees to engage in an “interactive process” to determine what constitutes an acceptable accommodation to the employee. It is subsequently unlawful for the employer to accept an alternative arrangement.

The similarity between the substance of the PWFA and ADA is significant because evidence suggests that the ADA’s reasonable accommodation language has harmed, rather than helped, its target population. For example, research suggests that the ADA reduced the employment of disabled men and women, with one study estimating ADA reduced employment rates for men with disabilities by 7.2 percentage points.

Additional research finds further adverse effects on employment. One study finds that the passage of the ADA was “associated with lower relative earnings” and “slightly lower labor force participation rates” for people with disabilities, and more recent research finds that the ADA reduced the firing of disabled workers but also reduced disabled workers’ ability to find a job.

What drove these unintended effects? One study indicates that the reasonable accommodation requirement in the ADA is particularly problematic and resulted in initial employment declines, with the requirement producing an estimated 10 percent decline in disabled employment in the years following its enactment. This is especially worrisome given PWFA includes the same reasonable accommodation requirement. Yet another study examining the ADA 20 years after its passage concluded that “unclear expectations on what constitutes appropriate accommodations for people with disabilities is likely having a chilling effect on the employment prospects of the disabled population… Reflecting an all too common irony in social policy, the ADA might be having the exact opposite effect of the intent of the legislation.”

Despite ADA’s initial effects, employment has been ticking up and unemployment has been ticking down for disabled workers in recent years. Unfortunately, that positive development is unlikely to have much to do with ADA, which is now more than thirty years past. Instead, improvements in the broader post‐​pandemic labor market recovery and the increasing availability of flexible or remote jobs are likely driving this effect. For example, remote jobs allow people with disabilities to avoid lengthy or inaccessible commutes, manage their work environment, and meet medication or other medical needs privately, among other advantages.

Ideally the PWFA will not result in adverse employment effects for pregnant workers, but evidence on the consequences of ADA suggest uncertainty. For pregnant workers, policies that support a strong labor market and permit flexible and remote work are a much better bet to increase opportunity and improve work life."

White Men Earned 11% Less Than Asian Women in Q4:2022

A tweet from Mark Perry.

"Huge Gender/Race Earnings Gap: White Men Earned 11% Less Than Asian Women in Q4:2022 ($1,194/wk. vs. $1,392 wk.) and Asian Women Outearned White Men in 5 of the Last 6 Quarters."