Capitalism vs. Racism: Equal Pay for Equal Work

by | Nov 1, 2022

Profit-seeking employers qua profit-seeking employers are simply unconcerned with race. Their principle is: of two equally good workers, hire the one who is available for less money; of two workers available for the same money, hire the one who is the better worker. Race is simply irrelevant.

The uniformity-of-wages principle must be understood as implying the existence of a powerful tendency under capitalism toward equal pay for equal work. Despite the prevailing belief that capitalism arbitrarily discriminates against such groups as blacks and women, the fact is that the profit motive of employers operates to eradicate all differences in pay not based on differences in performance. Where such differences persist, they are the result of government intervention or private coercion that is sanctioned by the government.

Where the profit motive is free to operate, if two kinds of labor are equally productive, and one is less expensive than the other, employers choose the less expensive, because doing so cuts their costs and raises their profits. The effect of choosing the less expensive labor, however, is to raise its wages, since it is now in greater demand; while the effect of passing by the more expensive labor is to reduce its wages, since it is now in lesser demand. This process goes on until the wages of the two kinds of labor are either perfectly equal or the remaining difference is so small as not to be worth caring about by anyone.

As an illustration of the fact that even very small differences in wage rates could not be maintained under capitalism, consider the following example. Assume that white workers of a certain degree of skill are paid $5 per hour. Assume that black workers of identically the same degree of skill can be hired for just 5 percent less, that is, for just 25¢ an hour less. Assume that a factory must employ 500 workers of this degree of skill. With a 40-hour week, over a 50-week year, this slight difference in hourly wage rates results in a saving of labor cost and a corresponding extra profit per year of $250,000 if the factory owner employs 500 blacks rather than 500 whites (for 25¢ x 500 x 40 x 50 = $250,000).

Even in the case of a small establishment employing only 10 workers, the annual saving in labor cost, and thus the extra profit attaching to the employment of blacks, would be $5,000 (since 25¢ x 10 x 40 x 50 = $5,000)— enough for the owner to afford a new car every other year or to make significant improvements in his business. It is doubtful that there are many employers so bigoted as to be willing to indulge their personal prejudice in favor of whites at a cost of $250,000 per year, or even $5,000 per year. The clear implication is that even slight differences in wage rates would make the employment of blacks in preference to whites virtually irresistible. Not only would a 5 percent differential in wages not be sustainable, but neither would a 2 percent or even a 1 percent differential. Every such differential would lead employers to hire blacks in preference to whites, and would thus bring about a further rise in the wage rates of blacks and a further fall in the wage rates of whites, until a virtually perfect equality was achieved.

Indeed, profit-seeking employers qua profit-seeking employers are simply unconcerned with race. Their principle is: of two equally good workers, hire the one who is available for less money; of two workers available for the same money, hire the one who is the better worker. Race is simply irrelevant. Any consideration of race means extra cost and less profit; it is bad business in the literal sense of the term.

It should be realized that one of the great merits of capitalism is that by its very nature employers are virtually compelled to be oblivious to race. The freedom of competition under capitalism ensures this result. For even if, initially, the majority of employers were so fanatically bigoted as to be willing to forgo extra profits for the sake of their prejudice, they would be powerless to prevent a minority of more rational employers from earning these extra profits. (“Rationality” in this context means not passing moral judgment against a person on the basis of his racial membership and not allowing such a judgment to outweigh the desire for profit. Such a judgment represents a logical contradiction in that morality pertains only to acts open to choice, while a man’s racial membership is not open to his choice. The irrationality is then compounded by the sacrifice of one’s own objective good—the earning of a profit—for the sake of the irrational judgment.) Because of their higher profits, the more rational employers would have a relatively greater income out of which to save and expand their businesses than the irrational majority. Moreover, since they operated at lower costs, they could afford to charge lower prices and thus increase their profits still further by taking customers away from the irrational majority. The result of these factors would be that the more rational employers would tend to replace the less rational ones in economic importance. They would come to set the tone of the economy, and their attitudes would be transmitted to all other employers, who would seek to emulate their success. In this way, capitalism virtually guarantees the victory of rationality over racial bigotry.

This discussion also provides a rebuttal to the accusation that under capitalism the skills and abilities of groups such as blacks are not utilized. For it follows that the unhampered profit motive leads employers to place the members of all groups in the highest positions for which their skills and abilities qualify them. Consider the following example. Assume that a skilled lathe operator must be paid $15 per hour, and that black workers who have been taught this skill in a trade school are presently employed as janitors at $5 per hour. The black workers would almost certainly be willing to change their jobs for a raise to, say, $10 an hour. Any employer who hired them as lathe operators at $10 per hour would thereby add $5 to his profits for every hour of their work, as compared with employing whites. Over the course of a year composed of 50, 40-hour weeks, his extra profit would amount to $10,000. And this would be on the labor of just one man. It is obvious that under capitalism, if the skills and abilities of blacks or any one else are being wasted in low-skilled, low-paying jobs, it is to the financial self-interest of employers to change the situation, indeed, to seek out such workers, and in many cases even to incur substantial costs in training them. And it follows that the greater the extent to which a group’s skill or ability is wasted, the greater is the profit to be made by rectifying the situation. For example, if a black with the ability to do the work of a $100,000-a-year company vice president is working as a $20,000-a-year clerk, it is even more to the interest of an employer to seek him out and rectify the situation than in the case of the lathe operator working as a janitor. In this case, the employer could double the black worker’s salary to $40,000, and at the same time add $60,000 to his own profits by employing him in a capacity commensurate with his skill and ability. Of course, just as in the initial case, the wages and salaries of blacks brought into the more skilled and higher-level jobs would more and more tend to match those of the white workers performing these jobs. Because as employers competed for blacks, their wages would rise, while, in order to be competitive with the black workers, the white workers would have to accept reductions. Indeed, once the first few blacks or members of other groups in a comparable situation are brought into an occupation in which they were previously unrepresented and succeed in proving their ability by actual satisfactory performance, a dynamic effect ensues. The breaking of the taboo, followed by the visible proof of its lack of rational foundation, changes the way in which such individuals are viewed. The demand for their services then greatly increases. (The history of major league baseball provides an excellent illustration. Once the taboo on the admission of blacks was broken with the employment of the very able Jackie Robinson, all barriers to the admission of blacks soon fell.)

In connection with the fact that free competition with members of so-called minority groups can entail a fall in the wage rates of the average member of the groups already established, most notably, white male workers, it should be realized that any such reductions in wage rates would take place as part of a process operating to raise the real wages—the actual standard of living—of the average member of all groups. For it would be accompanied by reductions in the prices of consumers’ goods greater than any reduction in after-tax money incomes experienced by the average member of the groups already established. This conclusion is conclusively demonstrated in later chapters of this book.

Of course, none of the above developments can occur if they are stopped by the initiation of physical force. If, for example, the local Ku Klux Klan is able to burn down the factory of an employer who employs blacks instead of whites, because it knows it will go unpunished by the law; or if local government officials are capable of suddenly finding all kinds of violations of building, health, and safety codes on the part of such an employer, to the point of crippling his operations, then employers will not seek to take advantage of the lower wages of blacks, and thus the wages of blacks will not be raised to parity with those of whites of equal skill.

Although not motivated by racial prejudice, what is also capable of aborting the advance of blacks (and women), particularly at the higher levels of employment, is a system of taxation that takes away the greater part of the additional profits that might be made by defying custom and making the necessary innovations of bringing them into fields of employment in which they were previously not represented. Indeed, industries whose profits are limited by the government, such as public utilities, or whose output is purchased on a cost-plus basis, such as that of defense contractors, have no financial incentive whatever to make such innovations. And, of course, in an environment in which destructive government regulations can be unleashed at any time on virtually any business, or in which valuable government favors or outright government subsidies can be obtained—in an environment, therefore, in which it does not pay to have enemies, or to offend any significant group, or, as the saying goes, in which it does not pay “to rock the boat”— businessmen will not be very quick to make such controversial innovations in employment.25 Ironically, such measures as equal-employment-opportunity laws directly rule out the very possibility of employing blacks or women at lower wages for the same work as whites or men. They thus directly prevent businessmen from finding the employment of blacks or women in the higher positions to be unusually profitable—profitable enough to begin defying traditions and customs based on nothing more than empty stereotypes.

Later discussion will show the especially destructive effects of minimum-wage and pro-union legislation on blacks, in aborting the very possibility of their gaining significant advancement.*

Notes

The substance of the following discussion concerning the opposition between capitalism and arbitrary discrimination has been excerpted, with minor modification, from my pamphlet Capitalism: The Cure for Racism (Laguna Hills, California: The Jefferson School of Philosophy, Economics, and Psychology, 1992). The pamphlet originally appeared as a six-part article in The Intellectual Activist in 1982.

*On this subject, see Ludwig von Mises, Bureaucracy (1944; reprint ed., New Rochelle, New York: Arlington House, 1969), pp. 64-73. See also below, chap. 9, pt. A, sec. 2, the subsection “Profit Management Versus Bureaucratic Management” in Reisman’s Capitalism: A Treatise on Economics.

Adapted from Reisman’s Capitalism: A Treatise on Economics, Chapter 6, The Dependence of the Division of Labor on Capitalism,“Equal Pay for Equal Work: Capitalism Versus Racism”

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George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. See his Amazon.com author's page for additional titles by him. Visit his website capitalism.net and his blog atGeorgeReismansBlog.blogspot.com. Watch his YouTube videos and follow @GGReisman on Twitter.

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