Bryan Caplan  

What Would Efficient Sexual Harassment Law Look Like?

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In a post I otherwise applaud, Alex Tabarrok presents an efficiency defense of sexual harassment law:
What the theory and the empirical results are saying is that people exposed to a higher risk of sexual harassment are paid more, just as people exposed to a higher risk of death are paid more. In the case of risk, however, the firm's owners (shareholders) are paying higher wages but also getting the benefits of risky work. But in the case of sexual harassment the shareholders are paying higher wages but not getting the benefits of sexual harassment. In other words, from the firm's point of view sexual harassment is a bit like employee theft - with the stealing being done by the harassers. (I alluded to this point in my original post and Miles Kimball made it as well.) Thus, shareholders may benefit if the government can reduce sexual harassment at low cost, precisely because they would then be able to pay lower wages without losing productive workers.
Knowing Alex, and noting his coy phrasing, I suspect he doesn't actually buy the argument he's presenting.  In any case, though, his words are misguided.  If sexual harassment were really analogous to employee theft...

1. Employers - including sole proprietors - would be free to opt out of the law.  Employers could substitute their own harassment rules, ignore the issue, or even fire workers who complain about harassment.  After all, if the employer condones X, there's clearly no need for the government to protect the employer from X.

2. The law would punish the sexual harasser, not his employer - and compensate the employer, not the harassee.  Under current law, in contrast, the harassee sues the employer.  In Alex's story, that just victimizes the employer all over again.

You could admittedly argue that #2 isn't a big deal.  When agents have long-term contractual relations, distributional effects depend on supply and demand elasticities, not the letter of the law. 

But #1 is a very big deal indeed.  If employers are really the ultimate victims, and government can protect them at low cost, employers won't want to opt out.  However, virtually everyone, regardless of ideology, realizes that opting out would be widespread. 

Why?  Because the whole point of sexual harassment law is to make employers punish behavior they'd prefer to simply tolerate.  In the absence of sexual harassment law, employers would ask themselves questions like:

1. Which employee would I rather lose - the harasser or the harassee?

2. Who's willing to pay more to get their way - the harassers to harass, or the harassees to not be harassed?  Before you answer, remember that one person's "harassment" is another's "free speech."

3. Many workplace romances are mutually desired.  A sexual harassment policy makes it harder to start and continue such relationships.  How much value do workers attach to the relationships that sexual harassment policies would eliminate?

This doesn't mean, of course, that employers would never punish sexual harassment.  What it means, rather, is that - in the absence of sexual harassment laws - employers would take a pragmatic, cost-benefit approach to the problem. 

The same goes, by the way, for employee theft today.  Sometimes employers turn a blind eye because the "theft" of e.g. office supplies passes a cost-benefit test.  And whether employers turn a blind eye often depends on the status of the employee.  A manager appropriates a 3-hole punch?  No one cares.  A janitor does the same?  Pink slip.  Employers are running a business - not a moral philosophy seminar.

From an efficiency standpoint, this pragmatic cost-benefit approach is ideal.  Still, you have a choice.  You can reject sexual harassment law on efficiency grounds.  Or you can take this conclusion as a reductio ad absurdum of the efficiency norm.  Either way, Alex's efficiency defense of sexual harassment law doesn't fly.

COMMENTS (6 to date)
Tom West writes:

Employers are running a business - not a moral philosophy seminar.

Reminds me of what I heard told to employees in a comic book store. There were certain adult customers that they noticed stealing that management told them to to ignore because while these customer may have stolen $10-$20 worth of stuff, they purchased thousands over a year.

Kids caught stealing, of course, were banned for life (after the police got through with them).

John David Galt writes:

The so-called sexual harassment law (effectively) bans a whole array of behaviors, which are not all the same morally and most of which should not really be called harassment. Here are some examples, which are not meant to be an exhaustive list but do illustrate the major situations. I'll start with the most serious and end with the most innocuous.

1. Boss either threatens, or maybe just hints, that subordinate will be fired, or disciplined, for not having sex with him (or conversely, offers a raise/promotion/fringe benefits if she will). She was not told pre-hiring that she would be expected to put up with this.

2. As case 1, but she *was* told pre-hiring.

3. Either superiors or just co-workers constantly "hit on" the employee, and continue (and/or threaten retaliation) after she objects.

4. Employee is not repeatedly "hit on," but the workplace has nude pictures posted, bawdy jokes going around, or a "locker room atmosphere" and the employee feels uncomfortable as a result.

If I could write the law covering these situations, all four would be very different.

Case 1 -- This amounts to fraud by the boss making the demands, either against the employee or (if he is not the sole owner of the business) against the business; maybe both. So for this case I have no problem with the law as it is -- except that the standard of proof may be too low (it ought to be more than preponderance of the evidence).

Case 2 seems to me a perfectly legitimate practice as far as the employee is concerned; sex is simply part of that job. (I realize that prostitution will have to be legalized before such a contract will be allowed; that should have happened long ago anyway.) But as in case 1, if the boss doing it is not the sole owner of the business, he may very well be defrauding the company (using its assets for personal gain).

Case 3 (and similar cases not listed) is the only one I would label "harassment." The remedy ought to be the same as it's traditionally been when you feel other people are being mean to you on the job: first try complaining to HR; if that fails, quit; and consider suing for constructive termination if you think you can make a case that there was malice or gross negligence involved. (Ideally the lawsuit should be between the individuals involved and not the employer.)

As for case 4, the law against it is an outrage -- cultural warfare against men being men -- and the plaintiff ought to be laughed out of the boss's office and told to grow a thicker skin.

David Friedman writes:

A further problem with Alex's argument, at least as you describe it, is that the same logic that implies that the victim of harassment will be paid more if harassment exists also implies that the harasser will be paid less. He, after all, is getting a valuable non-pecuniary benefit--the opportunity to harass--along with the job.

Jane Doe writes:

Anyone want to touch this issue?:

Attractive (or outstandingly beautiful, whathaveyou) people want to reap 100% of the social benefits of being attractive, but receive 0% frictional costs of being attractive.

Peter writes:

Do we know that govt isn't solving a prisoner's dilemma?

Perhaps absent laws, firms reluctantly tolerate harassment to attract harassment-law-averse workers.

You could also give a signaling story, that a single firm forbidding harassment seems uptight and puritanical, but again govt breaks the PD.

Michael Kochin writes:

In eras of high marginal tax rates, wage baskets include more payment in (untaxable) kind -- vide The Apartment.

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