The Free Market 31, no. 5 (May 2013)
You may have heard of Lilly Ledbetter. If you are concerned about the sorry state of U.S. employment, you may wish you hadn’t. This woman from Jacksonville, Alabama, a minor figure in the 2012 presidential campaign—occasionally invoked by Barack Obama, mostly ignored by Mitt Romney—is a former Goodyear employee who discovered she had lower earnings than her male co-workers when she worked as a manager for the company over the course of several years. Nearing early retirement herself, Ledbetter decided to sue Goodyear for gender discrimination. Ledbetter lost her case and the Supreme Court ruled against her in a 5–4 decision.
Ledbetter’s name soon began popping up in Obama’s 2008 campaign speeches while she appeared at his campaign events to promote the myth that unfettered markets result in injustices like gender discrimination and thus require government intervention. Just nine days after being inaugurated, Obama signed what became known as the Lilly Ledbetter Fair Pay Act. This law made it easier for alleged victims of discrimination to file charges against their employers by allowing them to file complaints years following an alleged event, as long as the filing occurred with 180 days of the last paycheck earned by the employee.
Ledbetter’s story is now a staple of so-called “Women’s Studies” at elite universities. Her new book, Grace and Grit, is allowing her to make the rounds on a partisan campaign against free markets, veiled as a book tour, as she collects awards and accolades from Democratic Party organizations and affiliates and makes the rounds on regional and national media outlets.
Most recently—fresh from the “Are We to Be Spared Nothing?” department—is the news of a major Hollywood fi lm of Ledbetter’s story, or at least her version of it. The movie is to be directed by Rachel Feldman who not only claims on her web site “[t]he creation of original content is my expertise,” but also that the Ledbetter saga makes for “a great American story as powerful as Norma Rae or Erin Brockovich.”
Ownership is Control
Far from being glorified in another anti-capitalist Hollywood flick, Ledbetter’s actions since 2007 deserve our contempt because they promote the expansion of fascism in the U.S. economy. I use the term “fascism” not as a pejorative epithet, but as a strictly descriptive term. Fascism is a variant of socialism in which economic resources such as capital and labor are privately owned yet employed on terms set by the state. This means that ownership is private in a legal sense but public in an economic sense because, from an economic perspective, ownership is control. Not surprisingly, the tendency of the United States to order its economy along these lines has increased as the size of the federal government itself has increased.
Firms favored by the state tend to welcome this type of intervention because it has the effect of protecting them from competition and allowing them to cartelize. When the state imposes a cost on private business—thus assuming economic ownership in the process—it creates a situation that can make it diffi cult for potential competitors to enter markets, increase output, and create downward pressure on prices. Automobile manufacturers, for instance, may welcome regulation requiring tire pressure monitors on tires—the latest “standard” feature—when they increase costs on potential competitors or at least reduce the relative difference in costs faced by competing firms.
The Ledbetter Act itself is fascist because it forces another such layer of state control over the ownership of resources, in particular that of labor. Thanks to its intervention, many firms are now more likely not to hire additional women for full-time management positions because of the increased monitoring and reporting costs that comes with their employment. Businesses will be more careful to maintain a level of female employment at whatever level they believe is necessary to avoid federal fines or other penalties.
Firms that will support the Act and the loss of control over their labor markets are those who believe they stand to gain market power over competitors who will have a more difficult time complying with it. As a result of this and previous interventions like it, we have an economy that is more French, characterized by a few large firms that exchange control in exchange for state favor, at the expense of the small business and entrepreneurial sectors associated with more competitive, dynamic, and wealth-producing economies.
The result: All workers, men and women, will have an even harder time selling their labor for whatever wage they choose due to the government’s assumption of economic ownership over it.
Economic theory tells us that in a free market, one’s wage reflects her marginal revenue product. How much one worker’s efforts add to a firm’s revenues determines her wages. If a firm pays an employee less than this revenue, then it earns profit by employing her. Conversely, if it pays her more than this revenue, then the firm earns losses.
Ledbetter claimed that her contribution to Goodyear’s revenues was equivalent to her higher income-earning co-workers, something that was disputed by the firm itself and confirmed in numerous case histories. But even if it was true, then so what? In a free labor market, workers who are paid less than their marginal revenue product are often bought away by competitors offering higher wages. That Ledbetter didn’t do this suggests many things, including that perhaps her lower wages did reflect (a) her actual contribution to Goodyear’s revenues, and (b) the best possible employment of her labor resource given her skill level in that labor market.
Moreover, the economics literature strongly suggests that, corrected for productivity, the differences between male and female compensation shrink considerably. As Loyola University economist Walter Block often points out, if wages of certain classes of workers (such as women) were actually less than the revenues generated by those workers, employers would be foolish not to have employment biases in favor of those workers in the first place.
A better long-term solution in the face of such discrimination is to promote a labor market defined more by economic freedom than fascist control. A free and functioning labor market is one in which (a) a Lilly Ledbetter, faced with workplace discrimination, can penalize her employer by finding a better paying job; and (b) employers refrain from engaging in discrimination out of concern for paying the market penalty of losing a productive worker.
The real problem in our current regulated market is that due to government intervention in a cartelized tire industry, we now pay more for tires and there are fewer of them. Meanwhile, the industry faces higher costs that require even more state protection in the form of subsidies, bailouts, and protectionism. Consequently, workers face fewer job opportunities that today contribute to unemployment rates well above those that would be consistent with a freer labor market, and a freer society.
One suspects such an analysis would be lost on Ledbetter the woman who, by all accounts, seems to be enjoying her second career as an “equal-pay activist.” Never mind that, in the process, she perpetuates a system that would otherwise come crashing down to the dismay of politicians, politically-connected fi rms, and state-approved labor unions. To them, Ledbetter is a useful tool, but one the majority of workers and wealth producers can do without.
