An employment tribunal has ruled that predominantly female store staff at Next have been unfairly treated because they have been paid less than predominantly male warehouse staff. This judgment, which is retrospective and will entail substantial back-payments to current and former employees, could cost the clothing retailers up to £30 million.

This is not an isolated case. A very similar claim at supermarket chain Asda has dragged on for years. The daddy of them all was Birmingham City Council, forced into bankruptcy at least in part by a massive equal pay judgment which has been estimated to cost anything between £250m and £750m. In this example, predominantly male road workers and refuse collectors were paid bonuses which were not available to predominantly female cooks, cleaners and care staff.

These cases arise because in 1983 we brought in regulations to implement the EU’s Equal Pay Directive, which extended the principle of equal pay between men and women to include not only identical work but also doing work ‘of equal value’.

What this means in practice is that organisations such as Next or Asda are expected to have a work evaluation scheme (there are a number of firms which make a great deal of money preparing such schemes) which ranks each job in terms of the skills and qualifications involved, the complexity of the work, the degree of responsibility and so forth. More demanding jobs should be paid more, but jobs with the same evaluation score should be paid the same.

If organisations don’t have such schemes, or the schemes are felt to be deficient, an employment tribunal can effectively make job comparisons for itself.

This principle is widely accepted, and sounds ‘fair’ but bears much more critical examination than it has received. It is in essence an application of the Marxist labour theory of value, and cruder versions were the basis for pay differentials in Soviet Russia and Eastern Europe which distorted the economy.

In job evaluation schemes, there is little or no role for market forces – the idea, for example, that Next might face a scarcity of warehouse workers and an abundance of applicants for shop assistants – which you might think could justify pay differentials.

These market forces might reflect subjective aspects of the work which are not picked up in job evaluation schemes. For example, warehouse work may be lonelier and more boring than being able to chat to customers and fellow workers in one of Next’s stores. Warehouses are typically stuck in the middle of nowhere and lunch breaks may involve eating stale sandwiches while perched on a packing case and listening to people moaning about their back problems. City centre store work, on the other hand, means you can nip out at lunchtime to meet your partner or pop into Pret or Greggs.

A free market would tend to produce ‘compensating differentials’ – economists’ jargon for extra pay for often intangible differences in the attractiveness of jobs. But current law suppresses this. A predictable consequence of a rigid application of such rules is that labour shortages tend to persist and the labour market works less well. And, as in the Asda case, you look to replace newly-expensive counter staff with self-service check-outs.

Another bizarre aspect of this is that a legal right to equal pay for work of equal value only currently applies to comparisons between men and women. If 90% of Next’s warehouse workers were women, and 90% of their shop assistants were also women, the company could pay warehouse workers extra with no comeback at all.

This situation is, however, probably going to change – and in a way which will make things much more complicated for businesses and considerably more expensive if, as is almost certain, they get it wrong. Moreover, as the same errors and confusions will inevitably arise in the public sector, the taxpayer will also get it in the neck.

For the Government is planning to apply the same principle – work of equal value to be paid the same – to ethnic groupings and to people with disabilities. So if people in wheelchairs feel they’re not being paid as much as other people doing similar jobs, they may make a tribunal claim for redress. If a Bangladeshi heritage worker sees, say, an Indian fellow employee being paid more than they are, there’ll be trouble. And, given the rising level of resentment manifested in the recent riots, we can expect some cases where white applicants will make the case to tribunals that they are being paid less than some minority counterparts. This will do nothing for community relations, and will tie bosses up in knots in the pursuit of ever-elusive ‘equity’.

This is likely to flatten pay structures, reduce economically justified differentials (and also, incidentally, performance-related pay, already a minefield for employers) and make the labour market work less effectively. It will distract management from focusing on increasing productivity, which is the only way in which the pie over which groups are fighting will ever grow appreciably.

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