What Would Efficient Sexual Harassment Law Look Like? By Bryan Caplan

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.