Sexual Harassment in the Workplace

Suppose a firm has a widespread reputation for sexually harassing its workers (or it follows the practice of telling workers that if they wish to work for the firm they must be prepared for sexual harassment). When a worker offers to work for such a firm and is accepted, there is, therefore, a Pareto improvement. Is there a case for banning such 'contractual' sexual harassment? This paper argues that the answer is yes, and that we can be both Paretian and ask for a ban. A general principle, called the large-numbers argument, is developed to justify this and it is shown that there are other areas, such as occupational safety where this principle can be applied. That is, there may be a case for preventing firms from exposing its workers to excessive hazards even when each worker finds the pay attractive enough to want to submit to this. Hence, this argument provides a general principle for deciding which market transactions ought to be banned as obnoxious, instead of relying on ad /zoc judgments. The paper goes onto discuss how our sexual harassment laws ought to be reformed so as to be more receptive to the needs of society. Acknowledgements: In writing this paper I have gathered many intellectual debts and would like to, in particular, thank Abhijit Baneijee, Alaka Basu, David Ellerman, Stanley Engerman, Gary Fields, Martha Fineman, Rachel Kranton, Glenn Loury, Sam Lucas, Tapan Mitra, Prasanta Pattanaik, John Roemer, Ekkehart Schlicht, Amartya Sen, S. Subramanian and Jorgen Weibull. The paper has also benefited from presentations at the Harvard-MIT Economic Theory seminar, a conference in honor of Amartya Sen at Bielefeld University and a seminar at the Institute on Race and Social Divisions at Boston University. SEXUAL HARASSMENT IN THE WORKPLACE: A Theoretical Analysis with Implications for Worker Rights and Labor Standards Policy