This is what the U.S. Court of Appeals for the 9th circuit has recently addressed, in a case about possible sex discrimination in how earnings are set:
Fresno County, California, schools used a policy of paying its new employees what they were paid in their previous (education?) jobs plus five percent. That five percent was intended to make changing jobs worthwhile. One employee, Aileen Rizo, learned in 2012 that she was paid less than her male colleagues doing the same work, and she sued the school district for sex discrimination, based on the Equal Pay Act of 1963. A lower court ruled for her, but the Court of Appeals overturned that ruling.
And this is where things get interesting: Can a school district base its salaries on the workers' past salary history? What does that past history reflect? And why would the district use that history as almost the only determinant of how much to pay someone?
Note, first, that the payment system in this case has almost nothing to do with some kind of an imaginary free labor market where the intersection of supply and demand would set the market wage levels. This system is a bureaucratic one, perhaps intended to make the setting of wages very easy.
The lower court argued that women's salary histories can reflect past sex discrimination. If that is the case, then basing current salaries on those past histories simply ossifies discrimination and punishes someone who may have already been punished by not letting her current earnings be divorced from the effects of past discrimination.
But the Court of Appeals disagreed. It's important to stress that the Court of Appeals didn't say that discriminating against women in the education industry is perfectly fine. Rather, it sent the case back to the lower court, and that court is to determine if there is a legal business reason, not linked to sex discrimination, which would justify the custom of basing current salaries on the workers' past salary histories.
The 1963 Equal Pay Act allows certain exceptions to the equal-pay-for-equal-work rule. Those have to do with seniority, merit, quantity and quality of the work and "any factor other than sex."
The county Rizo sued argued that using prior salary has the following business reasons "other than sex":
1) the policy is objective, in the sense that no subjective opinions as to the new employee’s value enters into the starting-salary calculus;
(2) the policy encourages candidates to leave their current jobs for jobs at the County, because they will always receive a 5% pay increase over their current salary;
(3) the policy prevents favoritism and ensures consistency in application; and
(4) the policy is a judicious use of taxpayer dollars.
The lower court is now ordered to consider the possible validity of these arguments.
Hilarious! How does one consider the validity of those arguments? Against which alternative payment rules? And I repeat my earlier question: Why would the school district base its salary policy almost exclusively on the applicant's salary history?
Note that points 1. and 3. in the above list are essentially the same point, because subjectivity and favoritism and lack of consistency are all intertwined, and any other externally determined number (say, the average starting salaries of people on that job level in the state of California) would serve just as well as the beginning offer.
Point 4. has nothing to do with the case, because any carefully negotiated set of salaries would be judicious use of taxpayer dollars (unless one is arguing that this system is good because it lets the taxpayers benefit from past sex discrimination, too), and point 2. is similarly vacuous, given that earnings negotiations usually arrive at some number greater than the applicant's current salary.
Those arguments are stupid, in my esteemed opinion, but the Court of Appeals wants them to be looked at. So.
My guess is that the school district used prior salaries as a proxy for seniority, experience and ability*. But the fact remains that one's prior salaries can also reflect sex discrimination, and to the extent that they do, women hired by this particular school district (and others using past salaries as the basis for current salaries) could never shake off the effect of past sex discrimination against them.
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* Why not address those factors separately? That would make a lot more sense.