Efficient Deterrence of Workplace Sexual Harassment

Abstract

Although sexual harassment imposes costs on both victims and organizations, it is also costly for organizations to reduce sexual harassment. Legislation, education, training, and litigation have all been unsuccessful in eradicating workplace sexual harassment. My proposal is to establish financial incentives of sufficient magnitude to incentivize organizations to eliminate sexual harassment. The key challenge is in monetizing the harm caused by sexual harassment. I propose a new approach that draws on my research, which calculated the risk of sexual harassment by gender, industry, and age based on charges filed with the Equal Employment Opportunity Commission. Using these risk measures, I established that workers receive a hazard pay premium for exposure to risk of sexual harassment. This premium reflects the higher pay workers need to work in a more hostile work environment and monetizes the aggregate societal evaluation of exposure to risk of an abhorred workplace behavior. Using my estimates of the pay premium, I calculate a value that I refer to as the “value of statistical harassment” (VSH). This amount is $7.6 million, far greater than the current federal cap of $300,000 for the largest firms. Raising the damages cap on awards to this level would provide organizations with the necessary financial incentive for efficient deterrence.