Labor Market Arbitrage

The Economist explains how discrimination in the labor market can be reduced by competition in product markets. As in the U.S., Korean women obtain at least the same education as men; but their rates of labor-force participation are much further below those of men than is true in the U.S., and that’s even true for highly educated women. This provides room for companies to hire equally or more qualified women at the same or even lower wages than men. Korean companies are loath to do this, but American companies in Korea are not. Everybody benefits from this labor-market arbitrage, which helps break down wage discrimination and job barriers. This reminds me of the anecdote about Alan Greenspan‘s consulting company which, so it is said, hired mainly women. Greenspan felt they were as competent as men and, because of discrimination, he could outbid the market and still get more productive workers per dollar than if he hired men.


Is there any company with only female employees ? The markets should not allow the arbitrage to last long.
Also only female employees may produce lower productivity. There must be an optimum balance between male/female ratio to get best results.


Why do you assume that there "must be an optimum" ratio. It is entirely possble that the male:female ratio has little or no effect on overall productivity.


I think this will fail in the upper management playing field, where social bias prevents the same arbitrage from existing on the c-level.


I see, so the american chauvinist employers somehow don't discriminate irrationally when hiring abroad.
I guess this may put a hole in the story that women are discriminated against within the US. Or maybe local employers are different from multi-national ones?

Scott Vandermyde

Why would anyone pay Alan Greenspan for advice, no matter whom he has working for him?

Ian Kemmish

The situation you describe would appear to entrench wage discrimination rather than erode it. To be sure, this is probably better for the women than not being offered jobs at all, but it's important not to over-egg the pudding.

In the 1980's, there was a company "F International" in the UK, which was founded and run by women for women. (I think Dr Pam Geisler was a leading light in it, but I may have mis-remembered.) I think it was particularly active in software consultancy, and a pioneer of home working - useful for women who wanted to have children without sacrificing a large part of their career.


I recently spent a week both in Korea and in Saudi Arabia. I saw more female engineers in Saudi Arabia than I did in Korea.

And the president of the Korea company was apologizing for having a female engineer.

Korea, especially, has a long way to go.


Yes, but in Saudi Arabia the women engineers have to have a male relative drive them to and from work. Not necessarily a step forward.


So it sounds like a man who didn't get hired by Greenspan's firm would have a solid case for discrimination based on sex.


Null Hypothesis: That there is no sex-based difference in education:wage multiplier
Alternate Hypothesis: That there is.

This is a convenient experiment with readily measurable outputs. So after 5-10 years, we can come back to South Korea and see whether the poachers have a significant edge compared to the non-poachers. To ensure that the poachers do not have inflated numbers by virtue of them being foreign, we'd have to normalize their financials compared to other global corporations.

But while we're eager to find an alternate hypothesis, are we brave enough to accept the null hypothesis? What if these numbers are "entirely their fault"?


Alan Greenspan's action is a perfect example of why we need more rich entrepeneurs and less government meddling (e.g. Affirmative Action) in the workplace.

Just as we need more Ted Turners and fewer national parks and forests, which can't compete with him in raising buffalo, much less in care for flora and other fauna.

David Thomas

@PaulD - not necessarily; it depends on how he achieved the results. If he made a habit of offering jobs to both women and men at the same salary and only women were accepting, there clearly should be no case (and hopefully would be no case). If he was turning men away before discussing salary requirements, then yes there likely would be a case.


Hiring women is a good way of thinking. They deserve to be equally treated by recruiters. It would be great if they were as paid as men. Let's wait and see...


Ian: Think a step farther.
Today, the profit-maximizing corporations offer below-male-market-value wages and attract strong female employees.
Tomorrow, those profit-maximizers outcompete their rivals. More companies (or bigger ones) are now hiring females. Now you need to offer higher wages to females than you did yesterday.
The exploitation thus creates its own remedy; an equilibrium in male:female pay ratios is reached when people are paid according to their expected productivity.


Great points that refute the value of government intervention. Free markets do work equitably in the long run.

Doug G

Do the profit-maximizers increase their costs by paying higher salaries? Not as long as other costs of business are the same. Would the newly hiring companies not turn to the now lower cost male workers, to get the same productivity? After all if the males have been not hired because of higher cost, they may be willing or needing to lower their pay expectations.

Equity is not sought in the market place. Thus we have competition between suppliers, who then have their own pay/productivity issues. Thus we have arbitrage exchanging paper at the least sign of a price differential. The free market is not about equitable-ness. One companies maximized profits are other companies higher costs.


Are there other studies that indicate that women sometimes require a premium to do the same work as men? As a woman who graduated summa cum laude from a prestigious university, I imagine I could compete for a number of high-paying jobs...but when the opportunity cost is time with my six-month-old daughter, I'm not sure there's a wage premium large enough to induce me to compete for jobs in the market right now.