On her Facebook thread, a
friend of mine presented me with a few questions about the so-called 'pink tax'
- that is, the extra amount she believes women are unfairly charged for certain
products or services, especially products related to sanitary needs and hygiene.
My friend thought the price differential 'unfair', and another contributor insisted
that these things should be priced the same.
The problem with saying
something complex like a price is 'unfair' is that prices are not just figures
slapped on products - they are a very complex nexus of information signals that
reveal what people perceive as valuable, and how (in)elastic
they are in their demands.
There is no systematic
unfairness, unless you count 'unfairness' as being a world in which different
people are price sensitive to different things. Both men and women prioritise different
things in their spending patterns, and prices go up and down in accordance with
those demands. Sellers will pitch their prices in relation to perceived demand
and perceived elasticity. To that end, the products are not as similar as it
may first appear, because they mean different things to different people.
Because value is
subjective to the consumer, it is difficult to look at the system overall and exclaim
it is unfair to one particular sex. Take smellies as a good example. I know
very little about aftershaves and perfumes, but it is easy to tell from the
range of products available that women value them more than men. There is a
greater variety of women's clothes and women's bags for the same reason.
Consequently, just as one
could frame the debate in terms of women paying more for similar smelly products, one
could equally frame it in terms of men are getting less variety in their smelly purchasing
options. But there's a good reason that neither sex minds this being the case.
If men cared about how they smell as much as women, there would be as many
aftershaves as there are perfumes, and aftershaves would be more expensive than
they currently are. The people who lose out in
this scenario are not just men or just women - they are men who are price insensitive
but more discerning about the variety of products, and women who are price sensitive
but less discerning about the variety of products.
Sellers are profit
maximisers - they will try to get as much as possible for each and every
product. Sell a plain rucksack and you might get £10 for it. Sell an otherwise
identical rucksack with a picture of Spiderman on it and it may fetch £15-20. The
reason is obvious: boys prefer a rucksack with Spiderman on it to a plain one. If there is a rucksack with a picture of Elsa from Frozen selling for less than the Spiderman rucksack, it is a signal that boys tend to care more about Spiderman rucksacks than girls do about Elsa rucksacks, even though the conceptual difference is negligible. Demands
for price equivalence will only be realised if there is value equivalence - and
when there is not, expect to see men and women paying different prices for very
similar things based on how much they are willing to pay.
Ironically, the genuine
cases of unfairness I've seen in the marketplace are when men and women should
be paying different prices for similar things but are forced to pay the same
price, thereby negating very important differences in the sexes. For example, the
European Court of Justice (ECJ) once ruled that the long-established practice
of setting insurance prices according to gender is illegal discrimination. The
Court's decision forced members of the European Union to introduce a ban on gender-based
pricing.
So, in basic terms, car
insurers used to yield to market-based risk calculation (using a reliable tool
called actuarial mathematics) and offer statistically safer drivers cheaper
premiums (perfectly sensibly, as any sane person would agree). Then the EU
decided that it's much better to ignore all this data and assent to a spurious
anti-unfair-discrimination policy, while failing to see the irony that in
penalising statistically safer people for purposes of parity they are unfairly
discriminating against safer drivers.
This beyond absurd. The
primary measure of unfair discrimination in actuarial analyses is not treating
different people differently, it is treating different people the same. Women are
statistically safer drivers than men, which means they are cheaper customers,
which means to increase their premium to the same as men is to unfairly
discriminate against women.
The reasons why women are
safer drivers are well known. Women are, on average, less likely to have fast
cars, they drive fewer miles, they drive slower, they take fewer risks, and
they are less aggressive than men. Giving women a lower premium based on those
facts amounts to a simple and rational statistical evaluation of risk.
The same is true of other
considerations too - age, post code, miles per year, type of car, and so forth
- each of these are important factors in risk evaluation, and the ECJ should
leave well alone. The free market is the best tool for eradicating unfair
discrimination in business, because pretty much any time a company decided to
discriminate against women, black people, gay people, tall people, fat people,
or whomever, they would pay for it with a reduction in profits*.
Of course, we know the
probable motive in the ECJ's equalisation of gender - it is to guard against
people with identical data having different premiums based solely on gender.
But that misses the whole quintessence of how competition works in the free
market. Suppose we have Jack and Jill, who are the same age, with the same car,
same post code, and driving the same miles per year - the ECJ would have it
that they should be given equal premiums because to do otherwise would be to
discriminate on the only variable factor - gender.
But that is not what
happens - while the data picks up facts like age, car type, post code, and
miles per year, it doesn't account for those significant differences - speed of
driving, risk-taking, aggression and other factors of mentality behind the
wheel that make women more likely to be safer and have fewer accidents, and
better candidates for cheaper premiums.
The ECJ is guarding
against the general being applied to the particular - but this is part of what
makes competitive business healthy. In a free market we can work under an
assumption of cheaper insurance premiums for a safer driving record at the
individual level anyway - so it's a law that only actually compounds what
already happens.
But we can extend far
beyond that too - competing firms can solicit new custom by offering deals to
acquire that custom. This proves very effective in the insurance market: some
providers specialise in good deals for modified cars (like my modified Subaru),
some specialise in good deals for women, some specialise in good deals for the
elderly, some for first time drivers, and so on.
Insurance companies have
asymmetry of information when it comes to those vital premium-changers - they
have transparency with data like age, post code, miles per year, type of car -
but they don't have anything like the same transparency with things like speed
of driving, risk-taking, aggression and other factors of mentality behind the
wheel - which is where the actuary matters.
A company that's free to
offer deals for women is acting on probability related to those invisible
factors - but that also means women are free to look for insurers sensitive to
such data, as are Subaru drivers, as are the elderly, and so forth. That's how
beautifully the market for insurance rewards this innovation.
If women are consistently
safer, then they are consistently on average cheaper customers, which rewards
those companies that are prepared in response to lower the premium for women.
But if the data is spurious and women are less consistently as safe as the
premium indicates then those same companies will incur a loss and adjust their
women-favoured premiums to accord with that. It's a hugely efficient system
that the ECJ hasn't properly factored into its considerations.
