It is commonly said that women earn 80 cents for every dollar that a man earns, even when doing the same job. Let’s assume this is literally true in order to see how an entrepreneur would respond to this fact.
a. Netrovia, a battery manufacturer, has an all-male workforce. It pays $10 million per year in salary to these men, and has annual profits of $1 million. You’ve just been hired as an outside consultant to help Netrovia raise its profits. Your advice is to fire all the men and replace them with women. If Netrovia followed your advice, what would Netrovia’s salary costs fall to? How much would this decision raise Netrovia’s profits?
b. After your success at Netrovia, you start getting a lot more consulting jobs. You give the same advice to all the companies looking to boost profits: Fire your men and hire an all-female workforce for 20% less. What will this do to the demand for female labor? And what will this tend to do to women’s wages?