Economics

What is “Equal Pay for work of Equal Value”?

Canada’s Liberal government has announced plans to bring in “equal pay for work of equal value” legislation by 2018. It would apply to almost 900,000 Canadian employees, including not only federal employees, but also anyone working in federally regulated sectors like banks and airlines.

To be clear, we’re not talking about “equal pay for equal work.” That’s the idea that if two people are doing the exact same work, and to the same quality, and for the same amount of hours – if it is exactly the same – then the federal government should pay them the same. That makes good sense.

But what we have here is the government deciding they are going to intervene in situations where people are doing very different work from one another. And the government is going to figure out how much their work should be worth, and whether they are doing work “of equal value.”

None of the newspapers reporting on this can spot the huge glaring problem with this – they talk of it as if it is simply a matter of administrating it right.

So what is the problem?

Who decides how work should be valued?

Consider this: how valuable is the work done by a second string back-up goaltender on an NHL team? He might still make several hundred thousand, even a million or two, and yet he’s not doing all that much.

Meanwhile a good teacher is helping form the next generation of minds – what could be more important? Yet this teacher isn’t likely to make even one hundred thousand.

Whose job is more valuable? A bureaucrat might decide it is the teacher. But are we going to start paying our teachers millions to even it up?

What we have here is an example of the “diamond water paradox.” While water is more important for life than diamonds (we can’t survive more than 3 days without water, but we can get by a lot longer without diamonds) water remains much, much cheaper than diamonds. Why is that?

As we all know, it’s because water is far more abundant than diamonds. Or to say it the other way around, diamonds are more expensive than water because they are rarer…even though they aren’t more important or more useful.

So something’s price is not always determined by how useful it is. There are other factors involved, and when it comes to jobs, that may also include how ready a supply there is for this position vs. that position. Teachers are in a far more abundant supply than NHL players of any type. That’s why the NHL player gets more.

If we start arbitrarily deciding this job is the equivalent of that one, and so both should get the same pay, only bad things can result. In our example it would either mean bumping all the teachers’ salaries up substantially (which we can’t afford) or lowering the goaltenders’ salaries to just a hundred thousand. But if these goalies are any good they could make more than that overseas. And so, suddenly, we’ve created a situation in which there is a shortage of quality second-string goalies because the government restricts what they can be paid.

Of course, the government isn’t going to restrict goalies’ pay – this is a goofy example. But the principles are just the same – the government is going to set up some sort of system of deciding what work is equal to which. And because it’s going to ignore simple economic rules (like scarcity driving prices up) it’s going to be a mess.

 

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