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Thread: FORTUNE Op-Ed: Obama flunks Econ 101

  1. #1

    FORTUNE Op-Ed: Obama flunks Econ 101

    [QUOTE][B][U][SIZE=4]Obama flunks Econ 101[/SIZE][/U][/B]
    As co-sponsor of a bill that would bureaucratize most of the labor market, the presidential hopeful is flirting with a very bad idea. Fortune's Cait Murphy investigates.

    By Cait Murphy, Fortune assistant managing editor
    June 5 2007: 5:38 AM EDT

    NEW YORK (Fortune) -- It's baaaack!! Yes, "comparable worth," which faded out around the same time the Bay City Rollers were disbanding, is making a comeback, under the euphemism "pay equity". To wit: the Fair Pay Act of 2007. Introduced by Tom Harkin (D-Iowa) in April (Obama is one of 15 co-sponsors) the Act notes the existence of wage differentials between men and women.

    This is true; according to the Bureau of Labor Statistics, in 2005 female full-time wage and salary workers made 81% of what men did; (click here on "women's earnings" in PDF). What is more dubious, though, is the assumption that is the heart of the Fair Pay Act: that discrimination is the reason for all or most of the difference. And the act's remedies are absurdly misguided, injecting the federal government into the most routine pay decisions.

    Granted, Obama did not write the bill, but he did sign on to it - the only presidential wannabe of either party to do so. The Illinois Senator is a serious man and a serious candidate who presumably did not go out of his way to associate himself with this legislation in a burst of whimsy. But the Fair Pay Act, despite its anodyne title (who's against fair pay?) is the result of profoundly unserious economic thinking. That Obama put his name to it has to give pause.

    Let's start with the dubious. To the Fair Pay Act's backers, the simple fact that women make 81% of men's full-time earnings is in and of itself proof of discrimination, past and present. Only a pig-headed sexist would argue otherwise.

    Or maybe not. June O'Neill, a certifiably female economist who served as director of the Congressional Budget Office under President Clinton, wrote a peer-reviewed paper for the American Economic Review (May 2003), trying to account for the pay gap. What she found was that women are much more likely over the course of their lives to cut back their hours or quit work altogether than men.

    More precisely, of women aged 25-44 with young children, more than a third were out of the labor force; of those women who did have jobs, 30% worked part-time. (The comparable numbers for men were 4% out of the labor force and 2% working part-time).

    All told, women are more than twice as likely to work part-time as men and over the course of their lifetimes, work outside the home for 40% fewer years than men. That accounts for a significant chunk of the pay gap. Then there is a more subtle factor. Despite the many advances the women's movement has brought the U.S., what it hasn't done, thank heavens, is make men and women the same. The simple fact is - and there is nothing nasty or conspiratorial about it - the sexes continue to choose different avenues of study and different types of jobs.

    Here's an illustrative example. The college majors with the top starting salaries, according to the National Association of Colleges and Employers, are: chemical engineering (almost $60,000), computer engineering, electrical engineering, industrial engineering, mechanical engineering. Men make up about 80% of engineering majors. Women predominate among liberal arts majors - whose salaries start at a little more than $30,000. Putting it all together, OšNeill figures that these differences - in choice of work, years in the workforce, and hours of work - could account for as much as 97.5% of the differences in pay between men and women. "The unadjusted gender gap," she concludes, "can be explained to a large extent by non-discriminatory factors."

    The pay equity activists insist that O'Neill (and other economists, most of whom agree with her on the basics) miss the point, which is that the discrimination is not so much against individual women as against women's work. Women are more likely to be in jobs that are dominated by women, such as elementary school teacher and librarian; men in jobs dominated by men, such as engineers and plumbers. And men's jobs, on the whole, pay more.

    As Harkin notes in his explanation of why he introduced the Act, social workers (mostly female) make less than probation officers (mostly male), "even though both jobs require similar levels of skill, effort and responsibility." The Fair Pay Act is meant to solve this. But what, exactly, is the problem? If more women than men want to become social workers, knowing full well that this is not a high-paying job - well, so be it. If they want to be paid as well as parole officers, then they should become parole officers.

    Discrimination occurs when people are barred from professions for which they are qualified, or paid less for doing the same job. It is not discrimination to freely make a choice that has an undeniable economic consequence. Call me an oversensitive female, but I detect a large dollop of patronization here. The theory behind the Fair Pay Act is that the labor market intentionally sets wages in a way that is unfair to women - and apparently we are so stupid that we fall right into this trap, repeatedly making non-rational choices (not just different ones).

    Again, the facts suggest otherwise. Since 1979, as more women have entered and stayed in the labor force for longer periods, the pay gap has narrowed, from 63% then to 81% now. Over the same period, according to the BLS, women's earnings have grown much faster than those of men. Women who work part-time actually make more than men who work part-time; and never-married women make almost exactly as much (96.7%) as never-married men.

    If the market was so rigged against women, it's hard to see how we benighted females could have made this kind of progress. Is there such a thing as sex discrimination in the workplace? Of course; most of us have seen, heard or experienced at least one situation in which a certain odor of sexist unfairness has stunk up a personnel decision (sometimes against the male of the species). Perhaps that accounts for the couple of percentage points that OšNeill had left when she had crunched the numbers.

    The American Association of University Women favors the Fair Pay Act; even so, in its recent report, "Behind the Pay Gap," it concluded that, "after accounting for all factors known to affect wages, about one-quarter of the gap remains unexplained and may be attributed to discrimination." That comes out to about five percentage points - double OšNeillšs estimate, but less than horrifying.

    The Fair Pay Act takes a sledgehammer to deal with this gnat-sized differential. Under its provisions, the Equal Employment Opportunity Commission (EEOC) would create criteria determining whether a given job is dominated by one sex; employers would have to send the EEOC every year a listing of each job classification, the race and sex of those holding such jobs; how much they are paid; and how such pay was determined. The goal of all this is to ensure that people in "equivalent" jobs are paid similar wages. "The term, 'equivalent jobs', according to the legislation, "means jobs that may be dissimilar, but whose requirements are equivalent, when viewed as a composite of skills, effort, responsibility and working conditions." And who would decide what is equivalent? The federal government, of course. Forget the price signal: Congress is on the job!

    Barack Obama actually went out of his way to become a co-sponsor of this misguided bill, signing on after it had been introduced. "For too many years, not only have women across America been under-compensated for their hard work, they have been undervalued," went his statement on Equal Pay Day. "Equal work deserves the guarantee of equal pay. We must eliminate the legacy of discrimination that continues to face women in the workplace, by ending penalties for women that choose to have both a career and raise a family and by making it easier for women to organize." There's nothing much to disagree with there, but there is also nothing that effectively addresses the merits (or demerits) of the proposed remedy.

    Equal pay for equal work has traditionally meant that people doing the same jobs (not "equivalent" ones) be paid the same. For example, if Hillary Clinton, who has the same job as Sen. Obama and started at the same time, was paid 81% as much, that would clearly be discrimination. But that is not the case - and her book advance was bigger, too. (Clinton, by the way, has not signed onto the Fair Pay Act; she is, however, a co-sponsor of the "Paycheck Fairness Act," which starts with the same misguided principles, but is much less dramatic in its provisions).

    The premise of the Fair Pay Act is that it is the duty of government to decide what a job is worth; but value is something that a free market is brilliant at apportioning. First-year chemical engineers make $60,000 because that is what their employers have to pay in order to win their services. Libraries can get excellent new staff for less. Librarians, male and female alike, know this; they may wish it were different but unequal is not the same thing as unfair.

    The labor market is not perfect, which is why there are such things as anti-discrimination laws and safety regulations. But there is nothing so wrong with it that the federal government needs to wade in, classify every single job for every company with more than 25 employees, and then assume the right to micro-manage every decision over pay. It's hard to overstate just how radical a policy this is: replacing a well-functioning system that is regarded as a source of U.S. competitive advantage with statist, centralized, bureaucratized mechanism of a kind more familiar to, say, East Germany in the 1980s than to the 21st century American private sector.

    The Fair Pay Act is, in short, madness. And it is troubling that Obama has associated himself with this kind of legislation - a position that has the feel of a pander to the feminist left. It is certainly not sound economics.

    Obama's Senate website does not feature anything dealing directly with employment or economic management. It does note, however, that more issue papers are being added. So perhaps the Senator is still working out what he thinks. Let's hope he eventually plumps in favor of something that looks a little more like capitalism. [/QUOTE]

    An interesting article IMO.

  2. #2
    Interesting article.

    Obama's economic polcies are a bit of a mixed bag: On trade, he's the most conservative/least protectionist Democrat running this year, but he does have some liberal social sensibilities that probably played into this vote.

    In general, I think he panders FAR less than most of the other five major candidates running: Clinton, Edwards, Giuliani, Romney and McCain have all put themselves in far more obviously embarassing pander situations than this.

    Here's an article I read about him recently in Time that showed his willingness to take unpopular positions within his party. I like politicians who aren't afraid to take on their audience every now and then, and this was impressive:


    Thursday, May. 31, 2007
    Obama's Inconvenient Truths

    Presidential-primary politics tends to be played like a game of connect the dots, with all the would-be nominees running from interest group to interest group, knowing and delivering precisely what each constituency is expecting to hear. Unless, that is, the would-be nominee happens to be named Barack Obama. Whereas other candidates like to throw red meat before their audiences, Obama is developing a penchant for hurling cold water at them.

    It may not be all that unusual for a Democrat to castigate automakers in an environmental speech. But when Obama did the castigating, it was in front of the Detroit Economic Club. Nor did he help his chances of winning the endorsements of the city's big unions by asserting that any aid Washington gives the automakers for their soaring health-care costs should be tied to improving fuel efficiency.

    "We anticipated that there weren't necessarily going to be a lot of applause lines in that speech. It was sort of an eat-your-spinach approach," Obama conceded when I asked him about the stony silence that greeted his address. "But one thing I did say to people was that I wasn't going to make an environmental speech in California and then make a different speech in Detroit."

    [B]That kind of conspicuous candor has been part of Obama's campaign since his announcement tour in February. When a questioner at a rally in Cedar Rapids, Iowa, wanted to know whether he would cut the military budget to make room for other priorities, Obama answered, "Actually, you'll probably see an initial bump in military spending in an Obama Administration" to replace the equipment that has been depleted by the Iraq war and build up the size of the active forces. When a teacher asked him about the No Child Left Behind law that is so unpopular with educators and their unions, Obama agreed that it "left the money behind." But while he endorsed higher pay for teachers, Obama also talked about "the things that were good about No Child Left Behind," including more accountability. By then, his listeners were shifting in their chairs.[/B]

    Regarding Social Security, the social program enshrined like no other in the theology of the Democratic base, Obama has said he is open to such politically heretical ideas as upping the retirement age and raising payroll taxes to shore up the system. Before black audiences, Obama regularly condemns violent and misogynist rap lyrics and chastises African Americans for disenfranchising themselves by not voting. In March, Obama caused some consternation among Jewish leaders by saying, "No one is suffering more than the Palestinian people." Given the chance to disavow that comment during a debate, Obama merely clarified it, saying the fuller context included an assertion that this suffering was the result of "the failure of the Palestinian leadership."

    All these statements bring to mind an emblematic moment of the 1992 campaign, when Bill Clinton, then Governor of Arkansas, went before the Rev. Jesse Jackson's Rainbow Coalition to denounce a controversial black rapper--and to prove he was not beholden to traditional Democratic interests. But Obama rejects that comparison. "I'm not interested in engaging in a bunch of Sister Souljah moments just for the sake of it," he says. "If I do that, it's not for effect but because it's what I really believe."

    Nor does Obama seem to have much regard for the rites and rituals that have come to define Democratic primary politics. When the huge public-service workers' union, the American Federation of State, County and Municipal Employees, held one of the first major candidate forums in February, Obama skipped it. Though he appeared in front of the politically important--and early endorsing--International Association of Fire Fighters in March, he all but ignored the union's pet issues--an almost masochistic choice that, not surprisingly, none of the other Democratic candidates made. Union president Harold Schaitberger said the group found Obama "a little somber." And this weekend, unless he changes his schedule, Obama will be the only leading Democratic presidential contender not to show up for the Iowa Democratic Party's Hall of Fame dinner in Cedar Rapids.

    Obama knows he is not the first to compete in a Democratic primary as the self-styled truth teller against the party's Establishment and entrenched interests. Gary Hart tried it against Walter Mondale in 1984, and in the pre--Sister Souljah months of 1992, Paul Tsongas famously branded Clinton a "pander bear." Bill Bradley and Howard Dean took their turns in 2000 and 2004. Obama says he is well aware of how the approach turned out for his predecessors in the role: "They lost."

    But this time, he says, he thinks the result could be different. "The country understands we have a series of choices now that, if we put them off any longer, will be much tougher to deal with, and we may not be able to deal with them at all," he says. "So I think there's going to be greater responsiveness to people who are actually saying what they think." It helps that Obama delivers his truth telling with a heavy dollop of optimism--a politically useful distinction from those truth tellers, like Tsongas, who came across as dour and depressing. And Obama's campaign is counting on the fact that America is different now--that in 2008 the national mood for change will be so powerful that voters will reward candor more richly than they have in the past.

    At the same time, Obama is beginning to put forward the sort of detail-laden policy proposals that have been lacking in a campaign that has thus far consisted largely of high-minded rhetoric about the need for a new kind of politics. This week, for instance, he announced a detailed health-care plan that he contends will provide coverage for nearly all the 47 million Americans who lack it and will trim the average family's health-care costs by as much as $2,500 a year. But it fell short of meeting the universal-health-care goal that has become the Democratic Party's rallying cry.

    Obama says his political consultant David Axelrod has occasionally felt the need to admonish him and his campaign "not to sit in the middle of the town square and set ourselves on fire." And, he says, "there will be those in my party who resist" his ideas. But, he adds, "there's got to be some element of truth telling in this year's campaign because the problems we face are too tough to try to finesse. If we do that, then we may win an election, but we won't solve the problems." In other words, Obama is betting that Democratic voters will decide winning isn't enough. If he's wrong, he'll end up with his truth-telling predecessors, nursing a moral victory as someone else accepts the nomination.

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  3. #3
    Join Date
    Dec 2003
    Somerset, NJ
    Its comical. As an employer, I fill out mandatory surveys sent out by the US Dept of Commerce which disclose the racial and gender breakdowns of our organization and how the racial and gender are reflected by hierarchy.
    However, as an organization, we are not allowed to ask this info and employees are given the option to provide this info when they are hired. So in other words, the govt is requiring us to provide them with information which we are not allowed to find out for ourselves.


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