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Companies have little incentive to fight workplace sexual harassment, Vanderbilt economist explains

by Mar. 1, 2018, 4:51 PM

portrait in library
Joni Hersch (Vanderbilt University)

New research by Vanderbilt economist Joni Hersch finds there are not strong enough incentives to push companies to eliminate or mitigate the risk of workplace sexual harassment.

In an article in the latest issue of the Georgetown Journal of International Affairs, she notes that while companies face some financial risk such as litigation costs, compensation costs, loss of workplace productivity and higher turnover, “the large share of charges of sexual harassment filed with the U.S. Equal Employment Opportunity Commission indicates that these costs to firms’ bottom lines are evidently insufficient to incentivize firms to eliminate sexual harassment.”

Hersch also finds two key issues – under-reporting by victims and lack of regulation – contribute to employers not responding to sexual harassment in the same way as they do other workplace risks for which they offer better responses and higher wages.

“As my work shows, sexual harassment ranks with fatality and job injury as working conditions people are most concerned about. But unlike workplace fatalities and injuries, sexual harassment isn’t regulated or inspected in a similar fashion,” said Hersch, Cornelius Vanderbilt Professor of Law and Economics and co-director of the Ph.D. program in law and economics.

In the journal article, Hersch explains that job safety is highly regulated by the Occupational Safety and Health Administration (OSHA) and companies can face hefty fines. But sex discrimination is not.

“Sexual harassment is illegal because it is a form of sex discrimination under Title VII of the Civil Rights Act of 1964, but firms are not inspected for compliance with antidiscrimination law,” she said.

Hersch adds that most sex discrimination lawsuits are filed privately and settlements often come with a non-disclosure agreement.

Cost of silence

Hersch finds that the biggest issue preventing companies from more aggressively eliminating sexual harassment—or paying employees a premium because of the risk— is underreporting by victims.

“Sexual harassment is underreported, in large part because victims rightly fear retaliation, with estimates indicating that 90 percent of victims do not make a formal report,” said Hersch.

Hersch adds that it is impossible for firms to conceal workplace fatalities and the overt risk of certain jobs, because job fatality risk is readily observable.

“Market pressures in terms of higher pay for higher risk is viable and sustainable,” said Hersch. “In contrast, sexual harassment is a risk that often stays hidden.”

Turning tide?

While workplace sexual harassment has been recognized in the United States as illegal employment discrimination for 40 years, social movements like #MeToo are pushing the conversation into the mainstream.
Hersch surmises that since sexual harassment is under-inspected by the government and under-reported, perhaps the “court of social opinion” through social media and other campaigns, will impact companies’ reputations enough that things will change. You can read Hersch’s full research article on this topic here.

Read more of Prof. Joni Hersch’s research:

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