Efficient Deterrence of Workplace Sexual Harassment

University of Chicago Legal Forum Volume 2019 Article 6 2019 Efficient Deterrence of Workplace Sexual Harassment Joni Hersch Follow this and additional works at: https://chicagounbound.uchicago.edu/uclf Part of the Law Commons Recommended Citation Hersch, Joni (2019) "Efficient Deterrence of Workplace Sexual Harassment," University of Chicago Legal Forum: Vol. 2019 , Article 6. Available at: https://chicagounbound.uchicago.edu/uclf/vol2019/iss1/6 This Article is brought to you for free and open access by Chicago Unbound. It has been accepted for inclusion in University of Chicago Legal Forum by an authorized editor of Chicago Unbound. For more information, please contact . Efficient Deterrence of Workplace Sexual Harassment Joni Hersch† 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. INTRODUCTION The #MeToo movement has graphically revealed the widespread decades-long practices of unwelcome and often criminal sexual acts perpetrated by men at the top of their industries. The acts described in mainstream media go well beyond misaimed courting overtures. The treatment by these harassers has been career destroying for victims. † Cornelius Vanderbilt Professor of Law and Economics, Vanderbilt Law School, 131 21st Avenue South, Nashville, TN 37203. . (615) 343-7717. The author would like to thank participants at The University of Chicago Legal Forum Annual Symposium, the Legal Forum editors, Jessica Clarke, and W. Kip Viscusi for valuable feedback, and Sarah Dalton, Danielle Drory, and Erin Meyers for their outstanding research assistance and excellent suggestions and comments. 147 148 THE UNIVERSITY OF CHICAGO LEGAL FORUM [2019 Meanwhile, the harassers continued to victimize subordinates with impunity, often with tacit assent of numerous observers and colleagues who were in the position to stop their behavior.1 Although the #MeToo movement has raised awareness of sexual harassment2 and has been costly to some individual harassers that have lost jobs and suffered reputational harm, the bulk of the cost continues to be borne by victims. The continued prevalence of sexual harassment does not merely reflect the harasser’s or their organization’s failure to consider the consequences that may result from such behavior but rather that the expected consequences have been largely inconsequential. Low reporting, an even lower probability of a successful lawsuit, and a low federal cap on damages awards combine to create a situation in which organizations rarely suffer substantial financial consequences from tolerating workplace sexual harassment. In contrast, there are countervailing costs associated with monitoring workplace behavior and sanctioning or removing from their positions some of the most valued or highly-placed employees. Damages awards can be used to deter risky or illegal workplace behavior in an efficient manner. Currently, however, damages awards in employment discrimination cases are not structured to provide a deterrence function. A fundamental problem can be traced to the federal cap on damages awards in employment discrimination cases, which, based on my analysis reported in this Article, is currently set at a level far short of that required for efficient deterrence.3 To address this shortfall, I propose that there be statutory changes to increase the cap to a more effective level. To establish the efficient deterrence level for sexual harassment, I follow the same economic principles used to establish efficient deterrence values for workplace mortality risks. The deterrence values for mortality risks is based on the pay that workers require to face mortality risks; I correspondingly derive the deterrence value for sexual harassment based on the pay that workers require for such hostile work environments. This value is about $7.6 million (in 2017 dollars) per sexual harassment claim filed with 1 Many examples have been described in the media. See, e.g., the highly detailed New York Times article reporting on Harvey Weinstein’s “complicity machine.” Megan Twohey et al., Weinstein’s Complicity Machine, N.Y. TIMES, Dec. 5, 2017, https://www.nytimes.com/interactive/2017/1 2/05/us/harvey-weinstein-complicity.html [https://perma.cc/9AM8-9ZAH]. 2 A note on terminology: Sex-based harassment is a term used to describe behavior that includes sexual harassment among other forms of gender-based harassment. The legal issue in my empirical analysis described in Part IV is recorded as “sexual harassment” in the EEOC charge data. I therefore use the term “sexual harassment” throughout this Article, but note that the term “sex-based harassment” is commonly used to characterize the broader workplace issues associated with workplace harassment. See Jennifer L. Berdahl, Harassment Based on Sex: Protecting Social Status in the Context of Gender Hierarchy, 32 ACAD. MGMT. REV. 641, 641–42 (2007). 3 See 42 U.S.C. § 1981a(b)(3) (2012). 147] EFFICIENT DETERRENCE 149 the EEOC, far above the current maximum damages award under Title VII of $300,000 for the largest firms.4 This Article will proceed as follows: Part I summarizes the costs of sexually harassing behavior to victims and to organizations. These costs are disproportionately borne by the victims; indeed, sanctioning sexual harassers can be costly to the organization. Part II summarizes survey evidence that demonstrates that sexual harassment is still common in the workplace. Part III provides an overview of possible approaches to deterring sexual harassment. The continuing high prevalence of sexual harassment confirms that current approaches provide inadequate incentives for deterrence. In light of the inadequa (...truncated)