New reporting requirements introduced by the Obama administration today would require companies to report to the federal government what they pay their employees by race, gender, and ethnicity.
While this may sound relatively harmless on the surface, the new reporting requirements and threats employed by government bureaucrats about how this data will be used against businesses will encourage more employers to adopt rigid pay structures to protect against legal claims. This will hurt workers’ pay and workplace flexibility.
It is already illegal for employers to discriminate on the basis of race, color, religion, national origin, or sex. Two statutes in particular protect individuals from discrimination in pay and employment based on these protected factors. They are Title VII of the Civil Rights Act of 1964 and The Equal Pay Act of 1963.
Despite assertions by the Obama administration, there is little evidence from studies to ascertain whether U.S. employees suffer from widespread discrimination in these cases. The so-called wage gap between men and women is based on faulty statistics that quickly dissipate when researchers account for other factors that affect job prospects and pay. Such factors include hours worked, education and experience, occupation and industry, non-cash benefits, and work interruptions. In other words, a woman might make certain choices, such as opting to study in a less lucrative field (such as choosing to major in education over engineering) or deciding to stay home with her children for a few years, that affect her pay. But her pay is likely not very different from the pay of a man who made such choices—it’s just that fewer men do make those choices.
Undoubtedly, some individuals suffer from discrimination by bad employers, and they have legal remedies to address individual circumstances. The Equal Employment Opportunity Commission provides many resources in this regard.
The new reporting requirements and threats employed by government bureaucrats about how this data will be used against businesses will encourage more employers to adopt rigid pay structures to protect against legal claims.
The new reporting requirements proposed by the Equal Employment Opportunity Commission (EEOC) and the Department of Labor would require businesses with 100 or more employees to report their employee profiles by race, ethnicity, sex, and job category, together with pay information, to facilitate Labor Department “enforcement work.”
“We will be using the information that we’re collecting as one piece of information that can inform our investigations,” said the Commission’s chairwoman, Jenny Yang.
Employers weary of costly discrimination lawsuits against them will likely react by adopting more rigid pay structures. The best way to protect against unfounded claims based on incomplete data that an employer is discriminating against an employee is to have one-size-fits-all pay structures that fit neatly into the boxes on government reporting forms.
This will lead to less flexible work arrangements, which are especially important to working parents, and less performance-based pay, like bonuses that encourage and reward excellence. Differentiated pay is a crucial mechanism for attracting and retaining qualified employees. Rigid pay structures will distort the labor market, thereby leaving our economy less productive.
The Paycheck Fairness Act included provisions similar to those now pursued by the Equal Employment Opportunity Commission via regulatory fiat. As is true in many other areas, notably the environment, the Obama administration is once again resorting to strong-arming businesses using the administrative state to force through rules that failed to pass in Congress.
The public has until April 1 to submit comments.