Pay Gap

Kamala Harris Wants to Force Companies to Report Pay Data to the Federal Government—and Fine Them If They Don't Offer Equal Pay

It's a one-size-fits-all solution to a complex issue.


Around the globe, governments have attempted to legislate away the gender pay gap, designing systems intended to shame employers into improving pay for women. But these efforts have not always worked quite as well as some might hope.  

In 2006, for example, Denmark attempted to equalize pay between genders by forcing companies to disclose compensation data. Although it closed some of the difference in pay between genders, it didn't eliminate the gap, according to a study published by the National Bureau of Economic Research. And in firms subject to the requirement, the result wasn't that women were paid significantly more than they otherwise would have been; it was that men were paid less than they likely would have been, via smaller raises. Meanwhile, productivity at affected firms dropped by 2.5 percent.

So men and women were somewhat more equal—but firms produced less, and, statistically speaking, no one was better off. In one sense, the policy accomplished its primary goal, or part of it, anyway. But it's far from an unqualified success.

Yet Kamala Harris now wants to replicate it, or something similar, but with an additional punitive component. In doing so, she is courting a variety of unintended consequences—and forcing a one-size-fits-all solution to a complex issue.

Not only does she want to force companies with over 100 people to disclose salary data by gender in order to get an "equal pay certification" from the Equal Employment Opportunity Commission, an arm of the federal government that enforces workplace civil rights, she also wants to fine companies for discrepancies in pay.

If a company fails to prove that it meets the standards of equal pay, it would be fined 1 percent of its profits for every 1 percent of the gap between what men and women are paid. This proposal would require legislation from Congress, but if no legislation were to pass, Harris, as president, would implement similar standards for federal contractors working on projects worth more than half a million. Her campaign estimates that the fines would raise $180 billion over 10 years, which she says would be used to fund paid leave programs.

Harris, in other words, wants to micromanage private employer compensation in the name of equality, penalizing firms that don't comply with her ideal. Which makes it exactly the sort of misguided idea you can expect from Harris, whose career and campaign have tended to combine hardline progressive politics with policies that emphasize punishment. (For much more on this, be sure to check out Elizabeth Nolan Brown's feature on Harris in the forthcoming issue of Reason.)

There are plenty of things that could go wrong with a plan like this: For one, it might end up backfiring if firms responded to the threat of fines by avoiding hiring women for certain types of jobs. Overt discrimination would be prohibited, but with incentives to discriminate in place, and the threat of penalties looming, some firms would probably find a way, at least at the margins. It could also encourage firms to outsource jobs that might have gone to women, in order to keep them out of the reporting data.

Indeed, managing the particulars of the reporting would almost certainly be a headache, as it has been in the U.K., which has imposed its own disclosure requirement for companies of 250 or more. Those companies were ordered to report data on 14 different data points, but doing so proved onerous and difficult, and the agency in charge of collecting the data has been accused of negligence. In the U.K., the government was criticized for being too lax in its enforcement, but it's easy to imagine an enforcement regime becoming unnecessarily burdensome as well.

Trying to determine exactly which jobs are comparable, and what other factors might be in play, is more art than science; legislation along the lines that Harris is proposing would probably result in the implementation of hard and fast rules that probably wouldn't capture the complex reality of different types of employment and individual compensation decisions. Those rules, in turn, would probably end up creating the conditions for further rules and requirements, and a large bureaucracy built up around examining (and implicitly dictating) pay for large employers.

Big firms, meanwhile, would probably respond to such legislation by seeking to standardize compensation decisions, subjecting more and more workers to pre-determined pay rates and salary bands, rather like the pay scale the federal government uses.

The transformation wouldn't happen overnight. But one-size-fits-all policies are the inevitable endgame for systems like the one Harris envisions. Instead of performance-based pay for individuals, employers would move to rote compensation schemes that treat people as anonymous groups while making little room for rewarding individual excellence or initiative.

That's bad for employers who want to provide more for workers who achieve more, and bad for employees who want to take initiative in order to stand out. And, as seen in Denmark, it's bad for the economy, which is already struggling with weak productivity growth.

It's not that compensation equality is a bad ideal, necessarily, or that gender discrimination at the workplace is pure myth. But the circumstances and particulars are often more complex and difficult to pin down than simple headline numbers seem to suggest. Analyses like the one that went around earlier this year purporting to find pay discrepancies even larger than previously known are often deeply flawed and widely misinterpreted. At the individual firm level, things become even more complicated: Google, for example, was accused of systematically underpaying women, but when it looked at its salary data, it was men who were being paid relatively less. And advocates for a legislative approach to eliminating pay gaps tend to ignore or downplay the role of women's choices: Even in Iceland—which last year put in place an equal pay law similar to what Harris proposes, and which already has one of the world's smallest gender pay gaps—women tend to take significantly more paid parental leave than men. 

But Harris apparently prefers to ignore all of this in favor of a sweeping, uniform policy that probably wouldn't fully accomplish her goals, but would almost certainly backfire in other ways. As she is wont to do, Harris is going all in on a flawed idea, consequences—intended or otherwise—be damned.