Workplace sexual harassment is illegal in the United States as well as in more than seventy-five other countries, and it is internationally condemned as a form of sex discrimination and a violation of human rights. While the legal tradition in European countries emphasizes the human rights violation and harm to dignity caused by sexual harassment, United States law emphasizes the barriers to employment opportunities caused by discrimination. Despite the fact that the United States is viewed by many in the international community as a standard bearer of human rights, survey evidence indicates that sexual harassment remains common and occurs across all sectors of the U.S. economy.
In a 2016 survey of U.S. federal workers, eighteen percent of women and six percent of men reported at least one occasion of sexual harassment in the preceding two years. Workplace policies and education have little effect on reducing harassment. The greatest hope for reducing workplace harassment is if the highly visible, and highly graphic, #MeToo coverage forces firms and investors to recognize the financial costs of tolerating sexual harassment, thereby incentivizing companies to eliminate it.
Since the October 2017 revelations about decades of sexual abuse perpetrated on women in the entertainment industry by media mogul Harvey Weinstein, there has been an explosion of reports of workplace sexual harassment perpetuated by men at the highest levels of industry, government, academia, arts, sports, and politics. Although the current level of media attention is unprecedented, this is not the first time that sexual harassment has transfixed public attention. Anita Hill’s striking testimony in 1991 at Clarence Thomas’s Supreme Court confirmation hearings continues to resonate. A series of high-profile class-action lawsuits charging sex discrimination and harassment against prominent Wall Street firms in the 1990s resulted in large settlements, memorably captured in popular discourse by descriptions of the “Boom-Boom Room.” President Donald Trump actually seemed to be boasting about committing sexual assault in language that he subsequently characterized during his campaign as “locker-room banter.”
Nearly forty years since the Equal Employment Opportunity Commission (EEOC) issued guidelines designating sexual harassment as illegal sex discrimination, why does sexual harassment remain widespread? Clearly legislation and court decisions have been insufficient to eliminate sexual harassment. It is also clear that even payments of large settlements have not been sufficient to deter harassers such as Roger Ailes.
To understand why sexual harassment persists, one must realize that in many workplaces, sexual harassment is one of the many preventable job risks associated with the workplace environment. It is costly for firms to eliminate job risks, such as risk of fatality or injury—and risks of sexual harassment. However, failure to eliminate these adverse working conditions is also costly. In order to attract workers to risky jobs, firms must pay workers more.
In a well-functioning labor market, workers sort into jobs based on their preferences for different types of working conditions; firms with working conditions that most people would find unattractive must pay more to attract a sufficient number of employees. If firms cannot attract enough workers at the risk/pay combination they offer, they will be forced to either raise pay or increase spending to lower the risk. As my work shows, workers at greater risk of sexual harassment are paid a premium for bearing this risk. Because workers require hazard pay for exposure to this risk, sexual harassment joins fatality and job injury as among the most highly detested working conditions. But high paying jobs, and the power and influence of the harassers who are only now receiving scrutiny, may allow sexual harassment to continue unchecked, as demonstrated by the longstanding and widely known treatment by Steve Wynn of salon and spa employees of Wynn Resorts. A promising sign, however, was the fifteen percent drop in value of Wynn Resorts’ stock value in the three days following the release of the Wall Street Journal’s investigative report.
It is also essential to identify the two stark differences in availability of information between the risk of job fatality or injury and the risk of sexual harassment. Because of these informational differences, firms do not face adequate incentives to eliminate or mitigate sexual harassment risk.
First, job safety is highly regulated and inspected at the federal and state level by the Occupational Safety and Health Administration (OSHA). Firms found to be out of compliance are fined by OSHA, and such fines are a matter of public record. In contrast, although sexual harassment is illegal, this is due to its categorization as a form of sex discrimination under Title VII of the Civil Rights Act of 1964. Firms are not inspected for compliance with antidiscrimination law. Although the EEOC pursues litigation against some firms and publicizes these cases, this approach is infrequently employed. Most suits are filed privately by victims of discrimination. For these private suits, there will be little in the way of public record to identify firms that have been charged with sexual harassment, regardless of the outcome of the charge, because it is rare for cases to go to trial or for settlements to be publicized.
Second, and even more detrimental to the prospect of achieving a market solution to reducing the risk of sexual harassment, is the severe underreporting by victims of sexual harassment. Again, compare the sexual harassment situation to the risk of fatality. All workplace fatalities are reported to OSHA. It is impossible for firms to conceal workplace fatalities. Because job fatality risk is readily observable, market pressures in terms of higher pay for higher risk is viable and sustainable. In contrast, sexual harassment is underreported, in large part because victims rightly fear retaliation, with estimates indicating that ninety percent of victims do not make a formal report. The underreporting is further exacerbated by the prevalence of nondisclosure agreements for those claims of sexual harassment that are settled. In the absence of information about the actual risk of sexual harassment, there is little incentive for firms to take on the expense of lowering the risk of sexual harassment.
If workers in firms with a high risk of sexual harassment were aware of the actual risk they faced, firms would need to either raise pay or increase spending to lower the risk of sexual harassment in order to attract employees. And, by failing to appropriately compensate the mostly female workers who are victims of sexual harassment, gender pay disparities are further exacerbated.
Firms are not, however, getting a free pass when they do not appropriately compensate workers for the actual risk of sexual harassment. Firms charged with sexual harassment face litigation costs and the costs of compensating victims. There is also a loss of workplace productivity, as workers who are sexually harassed suffer diminished productivity, greater absenteeism, and higher turnover. In addition, workplace productivity overall is reduced. Yet the large share of charges of sexual harassment filed with the EEOC indicates that these costs to firms’ bottom lines are evidently insufficient to incentivize firms to eliminate sexual harassment.
Can American and global workplace sexual harassment become a problem of the past? The best hope for incentivizing firms to eliminate sexual harassment would come about if the surge of media attention and the #MeToo movement succeeds in emboldening victims to report their harassment without fear of retaliation, and for firms to respond to the financial pressure created by the media coverage. Paying workers hazard premiums so executives can indulge their predatory activities is neither a profitable nor acceptable strategy.
Joni Hersch is an economist who works in the areas of employment discrimination and empirical law and economics. She is the Cornelius Vanderbilt Professor of Law and Economics at Vanderbilt University and the co-founder and co-director of Vanderbilt’s PhD program in law and economics.