The Unevaluated Economic Drain

One in three people faces some form of sexual harassment in the workplace. In recent times, the #MeToo movement has played a pivotal role in highlighting the extent to which sexual harassment pervades workspaces today. Yet, critics of the movement have often leveraged the lack of measurable damage to society to trivialize the deplorable impact of sexual harassment. As a prevalent social issue, however, there are social costs and researching the economic implications of workplace harassment can hold the key to increasing the seriousness with which society addresses the issue.

First, a 1988 study showed that a Fortune 500 company loses about $6.7 million due to substantial drops in productivity and motivation, higher turnover and more absenteeism due to sexual harassment at the workplace. The scholarship is old yet telling, and the monetary loss is to be much greater with the rise in workplace harassment since then. Newer research from Cornell University even went on to argue that witnessing or being a victim of sexual harassment mirrors effects similar to those of working really long hours and being exposed to numerous health hazards as sexual harassment has biological effects. As a result, businesses that normalize sexual misconduct are unable to maximise worker efficiency and make full use of their human potential. Moreover, it was also observed that women were more likely to compromise on the level of the job they took on if the workplace was less hostile. In effect, this means workers who have greater skill are lost out by businesses because of the uncomfortable work environment they house. Therefore, the quality of the human capital employed by large companies suffers due to the prevalence of sexual harassment.

Even upon preliminary observation, there are significant organizational costs that are borne as a result of sexual harassment. For instance, earlier this year Fox News paid out $90 million as legal settlements for shareholder claims after multiple top-level employees were embroiled in sexual harassment cases. Hence, in dealing with court cases, companies end up paying out big sums as compensation, which has a significant opportunity cost wherein expenditure could have been directed towards other aims of the business like growth and innovation. With the rampancy of workplace harassment, it also becomes vital for businesses to dedicate notable expenditure towards informal and legal resolution of complaints that would be unnecessary if sexual harassment was not a reality to deal with in the first place.

Although harder to quantify there are also several implicit costs that a business would face when there is sexual harassment. There a substantial degradation to brand value and reputation when companies are associated with sexual harassment. The Weinstein company was taken over by Lantern Entertainment because the Weinstein label carries a drastically different connotation ever since the #MeToo movement surfaced. The creation of a ‘brand’ develops consumer loyalty which ensures the sustenance of a business. Therefore, when brand value depreciates for multiple companies there is a direct negative correlation to the saleability of their services.

Gauging the impact of sexual harassment on the economy, as a whole, highlights the drain of human potential arising from an inconducive economic environment. Women, who are more prone to sexual harassment, are underrepresented in certain sectors because of the unsafe workplaces large corporates have normalized. In such a manner, individuals with the greatest capability to specialize in a certain field choose not to pursue it, which creates a drain of quality human capital in the economy. In the primary and secondary sector representation is not a very blatant issue. Nevertheless, low-wage female workers are still more prone to sexual harassment because of the authority placed in managerial roles usually given to men.  The power dynamics create fewer outlets that will ‘entertain’ these women’s reports of sexual harassment. Hence, consolidating the sectorial loss of motivation amongst a large demographic of their employees will reflect the perpetually increasing social costs and limited social benefit gained from prevalent sexual harassment.

Ultimately, there is a substantial loss in the economy because of the prevalence of sexual harassment that is hampering social potential and imposing costs that are unnecessary because sexual harassment has become a normalized practice in workspaces. Yet, the lack of scholarship on evaluating these costs has created a perception that there is no measurable loss to the economy resulting from sexual harassment. The conversations surrounding sexual harassment are often trivialized because numbers seem to be the only ‘rational’ evidence to stop oppression. Calculating and presenting these economic implications as numbers is a vital exercise that can hold the key to addressing gender debates with the importance and urgency they deserve.

https://www.ineteconomics.org/research/research-papers/metoo-the-economic-cost-of-sexual-harassment

https://www.weforum.org/agenda/2017/10/why-we-need-to-calculate-the-economic-costs-of-sexual-harassment/

https://www.reuters.com/article/us-fox-settlement/21st-century-fox-in-90-million-settlement-tied-to-sexual-harassment-scandal-idUSKBN1DK2NI

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Sandhya is a first year undergraduate student who aspires to major in economics. Economics can unravel the relationships between all domains in society and therefore the subject and it’s scope fascinates her. Her idea of fun includes jamming out to K-pop, reading comics all day long and raving about cinematography.

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