Sexual Harassment in the Workplace: How does it Affect firm Performance and Profits

Workplace sexual harassment is commonly attributed to workplace characteristics such as organizational tolerance. However, sexual harassment may also occur when there exists an asymmetry of incentives between supervisors and workers. Specifically, high-powered incentives for workers and low-powered incentives for supervisors create a vulnerability of workers to supervisors with a predisposition to sexually harass. Supervisors may seek sexual favors in exchange for a positive performance review or production-linked bonus. Power asymmetries may also be a contributing factor. A perception of relative power may lead a supervisor to disregard organizational norms related to the inappropriateness of workplace sexual harassment. Power asymmetries may also affect a worker’s perception of her ability to seek alternative employment. Analyzing a micro-dataset collected in Better Work participating apparel factories in Haiti, Jordan, Vietnam, and Nicaragua, we find evidence that asymmetric incentives between supervisors and workers and power asymmetries between supervisors and workers predict a higher concern with sexual harassment among workers. Increased competition among firms for workers reduces sexual harassment. The impact of organizational awareness is ambiguous. Awareness of sexual harassment by HR managers in Haiti, Jordan and Vietnam did not translate into an organizational norm that deterred sexual harassment. However, in Nicaragua, we observe a negative correlation between HR manager awareness of sexual harassment and its incidence. Tracing the impact of sexual harassment on output and worker and supervisor compensation levels, we demonstrate the cost in terms of forgone profits for firms in which sexual harassment is common.

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