30/10/2010

Sex discrimination disappears in a free market

Classic liberals, who are now generally called Libertarians because the term liberal has been hijacked and abused, have argued that discrimination would disappear in a free market and that any legislation would have unintended consequences:
In a capitalist society, Friedman argues, it costs money to discriminate, and it is very difficult, given the impersonal nature of market transactions. However, the government should not make fair employment practices laws (eventually embodied in the Civil Rights Act of 1964), as these inhibit the freedom to employ someone based on whatever qualifications the employer wishes to use. For the same reason, right-to-work laws should be abolished.
I was reminded of this section and the outcry it causes when reading an article about sex discrimination in South Korea where multi-nationals are profiting from sexism (£):

Working women in South Korea earn 63% of what men do. Not all of this is the result of discrimination, but some must be. South Korean women face social pressure to quit when they have children, making it hard to stay on the career fast track. Many large companies have no women at all in senior jobs. 
So far, so bad. However South Korea doesn't discriminate in education so women are as well, if not better, educated as men. Furthermore, it has one of the lowest birth rates in the world so women have more time on their hand anhd taking fewer gaps. And look what happens in a free market when some resource is underutilized:
Jordan Siegel of Harvard Business School reports that foreign multinationals are recruiting large numbers of educated Korean women. In South Korea, lifting the proportion of a firm’s managers who are female by ten percentage points raises its return on assets by one percentage point, Mr Siegel estimates.
South Korea is the ideal environment for gender arbitrage. The workplace may be sexist, but the education system is extremely meritocratic. Lots of brainy female graduates enter the job market each year. In time their careers are eclipsed by those of men of no greater ability. This makes them poachable. Goldman Sachs, an American investment bank, has more women than men in its office in Seoul.
OK, maybe equality hasn't moved fast enough for some but it does show that free markets in and of themselves aren't discriminatory and can be part of the solution. Furthermore, it highlights what many have been arguing for a long time, we don't have a gender pay gap, we have a motherhood career penalty.

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