For 11 years Chief Executive magazine has published an annual CEO survey of the best and worst states for doing business. The two constants of the survey: Texas always comes in first and California always comes in dead last.
And now the newly passed California Fair Pay Act essentially hangs a sign at the Golden State border saying “closed for business.”
The motive driving the new legislation is concern that women earn less than men. The standard calculation of this misleading figure shows that in California women earn 84 cents for every dollar a man makes, versus about 79 cents nationwide.
And so the new law says that men and women must be paid the same, not just for “equal work”—that’s been federal law for decades—but for “substantially similar work.”
Good luck figuring out what “substantially similar work” means. And you can bet that countless trial lawyers, left-leaning interest groups and the Obama administration will do their best to exploit that ambiguity.
This law slaps a big red target screaming “sue me!” on the backs of California’s largest corporations—because they have the deepest pockets to raid.
It’s another shoe to drop in the Golden State’s effort to drive businesses to other states by overtaxing and overregulating them. Can you say Toyota? How about Farmers Coffee?
Two years ago, Bloomberg Business conducted its own assessment of companies fleeing their state and found: “There were 1.3 million businesses in California at the end of 2012, 5.2 percent fewer than in the previous year (that’s about 73,000 fewer). To put that in perspective, Massachusetts lost 5,200 businesses, the second-highest amount, and Kansas had 3.1 percent fewer businesses in 2012 than in 2011, the second-highest loss rate.”
In some areas you don’t want to be No. 1.
And last August the Orange County (CA) Register editorialized, “California is considering imposing the most ruthless set of taxes seen yet—a tsunami of levies that may trigger the worst raid on private-sector finances ever organized by the state’s politicians… One result will be an increasing number of businesses leaving California for greener domestic or international pastures.”
While the women’s pay gap issue has been around for decades, indeed generations, President Obama tried to reinvigorate it as a national issue to promote the so-called Republican “war on women.”
Then the Washington Post reported that the White House paid women 87 cents for every dollar it paid men. Oops!
Democratic presidential candidate Hillary Clinton has also tried to exploit the issue. Then the Washington Free Beacon reported that as a senator, Hillary Clinton paid the women in her office 72 cents for every dollar she paid men. Double oops!
Now, I don’t believe that either the White House or Clinton’s Senate office were intentionally paying women less than men.
As labor economist and former director of the Congressional Budget Office June O’Neill explains, “The 77 percent statistic [79 now] … simply compares the annual earnings of women and men who are full-time, year-round workers.” O’Neill told me that when personal decisions such as career and family-related choices are factored in, the gap almost disappears.
But don’t expect the state of California—or Clinton or the White house, for that matter—to give any businesses the benefit of the doubt. California doesn’t care about those long-understood facts; it wants to make a gender-equality statement to the country whether it’s accurate or not.
But the message most businesses, especially large ones, will hear is they could have to spend millions of dollars (1) trying to develop procedures that prove Job A is substantially different than Job B, therefore worthy of a pay difference, or (2) in legal fees because they didn’t spend enough on the first option to discourage the trial bar from suing.
So the logical question many California-based businesses will ask is: Why not move to Texas, Florida, North Carolina, Tennessee or Georgia—the top five states in the Chief Executive survey? Wouldn’t it be wiser to be based in a state that is more eager to grow its economy than its court docket, and invest the litigation savings in expanding their businesses and creating jobs?
Thousands of Golden State companies have already come to that conclusion, and thanks to the Fair Pay Act many more will finally agree.