To illustrate the nature of the problem encountered by such legislation,
consider the example of two types of construction workers—those who
work mostly indoors doing home and building renovations, and those
who work mostly outdoors on bridges or the exteriors of buildings.
Suppose these two jobs demand equal skills and training. But in a city
with a harsh climate, the outside construction job is less pleasant than
the inside construction job. In the absence of pay-equity legislation, the
wage for outside workers would exceed that for inside workers—an
equilibrium and compensating wage differential. If legislation now
requires equal pay for both jobs, there will be a shortage of people willing
to work outside and an excess of people willing to work inside. Employers
will seek ways to attract outside workers. Higher pensions, shorter hours,
and longer holidays may be offered. If these are allowed, they will achieve
the desired result but will defeat the original purpose of equalizing the
monetary benefits of the inside and outside jobs. If the jobs are unionized
or if the government prevents such “cheating,” the shortage of workers for
outside jobs will remain.
Policies that seek to eliminate equilibrium factor-price differentials without consideration of
what causes them or how they affect the supply of the factor often have perverse results.