Money, Sex, and Sunshine: A Market-Based Approach to Pay Discrimination

Abstract

The Equal Pay Act had a distinct market purpose. Congress made a policy choice to modify the existing compensation market so that employees who perform jobs requiring substantially “equal skill, effort, and responsibility” earn equal wages, regardless of sex. The Act aimed not simply to promote individual fairness, but to foster a more efficient, equitable wage market on a systemic level. Congress recognized that paying lower wages to women constituted “an unfair method of competition,” burdened “commerce and the free flow of goods in commerce,” and prevented the “maximum utilization of available labor resources.” Over time, however, the “market” in equal pay cases has been transformed from the fundamental reason for the Act to an acceptable business defense for paying women less. At the same time, pay discrimination is conceptualized today in the rhetoric of “fairness,” which overshadows the core market purpose of the Act. This Article contends that equal pay laws have failed in their market purpose and will continue to fail so long as reform is centered solely on a litigation-enforcement model. The Article reframes pay discrimination as a market failure caused by insufficient and asymmetric information about the value of work, rather than an individual fairness concern. It explores lessons that can be learned from executive compensation scholarship, which offers more sophisticated analyses of the causes of abusive pay practices. Executive pay scholars have exposed: (1) the human dynamics and conditions that cause compensation markets to fail; (2) the ineffectiveness of litigation to fully address abusive pay because of court reluctance to interfere with “business judgments” about compensation; and (3) the crucial role of transparency as a market-based approach to reform abusive pay practices.

Applying these lessons in modified form, the Article examines how pay secrecy distorts compensation markets and permits pay discrimination to flourish, even in the absence of intentional sex discrimination. Given the increasing ineffectiveness of equal pay litigation, it analyzes how pay disclosure and transparency can be used to promote a more efficient compensation market in which employees are appropriately valued and rewarded without the taint of discriminatory factors.

Keywords: Equal Pay Act, gender pay discrimination, Fair Pay Act, Paycheck Fairness