SEXUAL HARASSMENT IN THE WORKPLACE - IZA Institute Of Labor Economics

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SEXUAL HARASSMENT IN THE WORKPLACE:THEORY, EVIDENCE AND REMEDIATIONXirong Lin, Boston CollegeLaura Babbitt, Drusilla Brown, Claire Sleigh, Tufts University7 October 20161

ABSTRACTWorkplace sexual harassment is commonly attributed to workplace characteristics such asorganizational tolerance. However, sexual harassment may also occur when there exists an asymmetryof incentives between supervisors and workers. Specifically, high-powered incentives for workers andlow-powered incentives for supervisors create a vulnerability of workers to supervisors with apredisposition to sexually harass. Supervisors may seek sexual favors in exchange for a positiveperformance 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 theinappropriateness of workplace sexual harassment. Power asymmetries may also affect a worker’sperception of her ability to seek alternative employment. Analyzing a micro-dataset collected in BetterWork participating apparel factories in Haiti, Jordan, Vietnam, and Nicaragua, we find evidence thatasymmetric incentives between supervisors and workers and power asymmetries betweensupervisors and workers predict a higher concern with sexual harassment among workers. Increasedcompetition among firms for workers reduces sexual harassment. The impact of organizationalawareness is ambiguous. Awareness of sexual harassment by HR managers in Haiti, Jordan andVietnam did not translate into an organizational norm that deterred sexual harassment. However, inNicaragua, we observe a negative correlation between HR manager awareness of sexual harassmentand its incidence.Tracing the impact of sexual harassment on output and worker and supervisorcompensation levels, we demonstrate the cost in terms of forgone profits for firms in which sexualharassment is common.The paper then turns to measuring the impact of an enterprise assessment social compliance program.Firms are assessed against domestic labor law and core labor standards.Employing a quasi-experimental approach, audits that include sexual harassment as part of the discrimination cluster arefound to significantly reduce both reports of sexual harassment and its intensity in Vietnam, Indonesiaand Jordan.2

I. INTRODUCTIONThe efficiency properties of policies for improving working conditions in developing countrieshave been a focus of the international labor standards literature. Improved working conditions arebeneficial for workers if they are able to work in a safer and cleaner environment, endure less sexualharassment or verbal abuse, and have more bargaining power over wages and other forms ofcompensation. However, it is not clear whether a factory benefits from compliance with internationallabor standards. While firms commonly view labor standards compliance as a cost, it is possible thatimproving working conditions will increase production efficiency and firm profits. Such an outcomecould occur if firms in developing countries systematically adopt suboptimal labor managementsystems.The first part of this paper explores whether tolerance of sexual harassment (SH) reduces profitsin developing country apparel firms. A formal theoretical model is constructed with various incentivestructures and punishment of workplace sexual harassment to characterize profit-maximizing workingconditions. We draw on the social psychology literature to model the role of organizational norms andpower asymmetries in the determination of sexual harassment and its impact on work outcomes.The countries included in the analysis are Haiti, Jordan, Vietnam, and Nicaragua. The Better Workprogram, a partnership between the International Labour Organization (ILO) and the InternationalFinance Corporation (IFC), has worked in collaboration with local and international stakeholders todesign Better Work Haiti, Jordan, Vietnam, and Nicaragua. The project aims to improvecompetitiveness of the apparel industry by improving compliance with domestic labor law and theprinciples of the ILO Declaration on Fundamental Principles and Rights at Work in these countries(Better Work Haiti 1st Synthesis Report).The paper then turns to analyze the impact of Better Work on the incidence of sexual harassmentusing a quasi-experimental approach. Firms are randomly assigned to an assessment month withina five month window and randomly assigned to a data collection in the months following anassessment.3

II. HUMAN RESOURCE MANAGEMENT SYSTEMS AND SEXUAL HARASSMENTThere are five aspects of the employment relationships studied in the field of personneleconomics: (1) work incentives, (2) matching firms with workers, (3) compensation, (4) skilldevelopment, and (5) organization of work (Lazear and Oyer 2007). The analysis below focuses on theincentive and compensation structure, as well as the organization of work in a factory’s humanresources management system.The structure of incentives is central to firm performance. Underlying a firm’s choice betweenbase salary and piece rate is a trade-off between risk in the form of compensation uncertainty and theincentive effect of piece rate pay. While piece rate pay rewards work effort, a firm may choose to offerhourly compensation to risk-averse employees (Lazear and Oyer 2007).Firms choosing performance based pay have the added complication of monitoring effort andobjectively assessing performance. Commonly, the performance of employees in developing countriesis not based on objective evaluation, but rather on a supervisor’s subjective measure of performance.Fama (1980), analyzing agency in a workplace, suggested that agents of management may incorrectlyevaluate an employee’s performance for their own benefits. Holmstrom (1999) analyzes how aperson’s future career consideration might affect his or her incentive to contribute effort and makedecisions on the job. A subjective method for assessing performance may create an opportunity forquid pro quo sexual solicitation of a worker by a supervisor. A supervisor may solicit sexual favors asan implicit requirement for a strong performance evaluation. Workers, thinking about their futurecareer, might choose to tolerate such behavior.Theoretical analysis of a firm’s incentive structure on an employee’s work performance issupported by empirical work that demonstrates the positive impact of piece rate on productivity.Shearer (2004) employed a field experiment to assess a piece rate compensation structure and founda 20 percent increase in productivity when workers were paid by the piece rather than by wage orsalary. Lazear (2000a) compared high-powered and low-powered schemes for supervisors. When afirm implements high-powered incentives, sorting effects lead managers to choose only profitable4

projects. Similarly, Bandiera et al. (2007), using experimental methods, found that piece rate payincentivizes supervisors to focus production support on their high productivity subordinates.However, while piece rate pay will increase output, it does not necessarily increase profits.Freeman and Kleiner (2005) found a reduction in productivity but increase in profits when a piece rateincentive is removed.One adverse effect of low-powered incentives for supervisors is the diversion of supervisorattention away from production to sexual solicitation of a subordinate (Brown et al. 2013). Sexualharassment is defined by Paludi and Barickman (1991) as bullying or coercion of a sexual nature, orthe unwelcome or inappropriate promise of rewards in exchange for sexual favors. In a workplaceenvironment, a demonstration of sexual interest may create a hostile or offensive environment thatresults in permanent pain to its victims. In developing country apparel firms, sexual harassment iswidespread. The hierarchic environment consisting of male supervisors and female productionworkers is a contributing factor. Women are also more likely to be segregated into precariousemployment characterized by low skill, low wages and low status employment with an immediatemale supervisor, a situation common in apparel factories (Di Martino et al 2009).Fitzgerald et al. (1997) develop a conceptual model of the causes and consequences of sexualharassment. In their framework, sexual harassment is modeled as a function of two conditions:organizational climate and job gender context. The outcomes of sexual harassment fall into threecategories: job outcomes (satisfaction, job and work withdrawal), individual psychological outcomes(distress, trauma), and health outcomes (physical outcomes and health satisfaction). The empiricalstudy supports this theoretical framework. Experiences of sexual harassment are positively correlatedwith the extent to which an organization tolerates sexual harassment in the workplace, as is thelikelihood of working in a male dominated job context. Sexual harassment is directly related to job andpsychological outcomes, but only indirectly correlated with health outcomes.Given the sensitive nature of sexual harassment in the workplace, empirical testing is challenging.Participants may not be willing to divulge information about their sexual experiences at work and5

overall satisfaction at work and the personality of the participant might also affect the researchoutcome.A variety of research designs and sampling methods have been developed to avoid the aboveproblems. Schneider et al. (1997) developed a stress framework for studying sexual harassment basedon the conceptual framework of Fitzgerald et al. (1997). Following the stress and coping literature,Schneider et al. (1997) conceptualized sexual harassment as a workplace event that is appraised bythe recipient as stressful. To study the negative psychological consequences of sexual harassment, theydesigned an experiment that separated the negative effects induced by possible variables other thansexual harassment. In their survey, they included questions to account for individual differences insensitivity when determining the negative effects of sexual harassment. In addition, they includedquestions to measure the person’s attitudes towards their job and their satisfaction at work.Schneider et al. focus on a victim’s manner of coping with and responding to sexual harassment.The sample included two independent groups: a private-sector organization and a large researchoriented university. All participants completed the “Workplace Environment Survey.” The participantswere informed that they would be asked about their job attitudes, job behavior, and a wide range ofstressors that might occur on their job. Participants who reported experiencing sexual harassmentover the preceding 24 months were asked to describe the incident and their coping strategy. Theresults suggest a negative relationship between sexual harassment and negative job-related andpsychological outcomes. Additionally, harassed women in both samples exhibited similar outcomes,which implied that outcomes do not depend on work type. Further, this study provided evidence thatthe women who experienced sexual harassment were not necessarily “oversensitive” people.Following Fitzgerald et al. (1997) and Schneider (1997), Willness et al. (2007) performed a metaanalysis of available data with respect to antecedents and consequences of workplace sexualharassment. Their findings are consistent with Fitzgerald et al. (1997) in that organizational context(organizational climate) and the job gender context both play an important role. Moreover, theycharacterized significant negative consequences from sexual harassment such as decreased jobsatisfaction, increased job withdrawal behavior, and harm to the mental and physical health of the6

victims. As a consequence, reducing sexual harassment is seen as beneficial from a management orperformance perspective.Kisa et al. (2008) conducted sexual harassment research on nurses working in Turkish hospitals.Women in health care professions are primary targets of unwelcome sexual attention due to theirsubordinate positions and low status and power. The goal of the research was to test the hypothesisthat sexual attention would decrease productivity of the nurses. The results indicate that sexualharassment is prevalent, with over half of victims reporting that their productivity was negativelyaffected.Antecol and Cobb-Clark (2006) examined the relationship between sexual harassment and jobsatisfaction by sampling women from the U.S. military. They found that sexual harassment wasassociated with decreased job satisfaction and increased desire to leave the U.S. military. One criticismof the analysis is that the estimated relationship between sexual harassment and separation wasbiased upward since the authors did not control for the individual’s unobserved, time-variantcharacteristics. When controlling for a woman’s views about whether she has been sexually harassed,the positive relationship between sexual harassment and intent to leave the U.S. military was reduced.Other research has found that sexual harassment is best predicted by the interaction of individualand situational factors (Pryor, Giedd, & Williams, 1995). Some individuals are more likely to harassthan others; when it is easy to sexually harass, these individuals will take the opportunity. Thisindividual factor is called Likelihood to Sexually Harass (LSH; Pryor, 1987), and is measured with a seriesof vignettes. Participants read about situations in which there is the potential for quid pro quoharassment and indicate how likely they would be to take advantage of that situation.As described above, organizational tolerance is a key situational factor. Another study of womenin the military found that women in units where the commanding officer was believed (by men andwomen) to tolerate or even encourage harassment were more likely to experience harassment;women with commanding officers who were not tolerant of sexual harassment were much less likelyto experience it (Pryor et al., 1993).7

Empirical work shows the interaction of these situational and individual factors. In one study, malecollege students were asked to help a woman learn one of two tasks—putting or poker. The high-LSHmen (those who had indicated that they would take advantage of quid pro quo situations) were likelyto act inappropriately, touching and talking to the woman in a sexual way—but only when they wereteaching putting, which put them in close physical contact and gave them the opportunity to harass.When they were sitting across a table and teaching poker, they did not harass the woman. Low-LSHmen, on the other hand, behaved appropriately in both situations. Thus, sexual harassment was mostlikely when both individual and situational factors allowed it (Pryor, 1987). Similarly, another studyfound that high-LSH men were more likely to harass a woman when they had seen a maleexperimenter behave sexually with her (flirting and leering). These men followed the norm that hadbeen set, and touched and flirted with the woman while they were supposed to be training her on acomputer task. Low-LSH men behaved professionally regardless of the example that had been set(Pryor et al., 1993). Again, both individual and situational factors were important in predictingharassment. When the structure of the interaction provides the opportunity to harass, or social normsindicate that harassment is accepted or encouraged, men who are predisposed to harass will do so.Truskinovsky et al. (2013) analyzed a micro-data set of worker demographics and workplacecharacteristics in Haitian, Jordanian, and Indonesian apparel factories. They tested four hypothesesconcerning the determinants of reports of sexual harassment. These include the vertical alignment ofincentives within the factory, the level of organizational awareness, sexual harassment as a form ofworker discipline, and sexual harassment as a form of supervisor compensation. Sexual harassmentarises primarily in factories in which supervisors are charged with assessing the individual workperformance of their subordinates for the determination of production-related pay incentives. Theyfound that sexual favors as a form of bribery for a positive work-effort report is more common infactories with low organizational awareness, as reflected in the human resource manager’s perceptionof sexual harassment as a concern, and supervisor training. Sexual harassment was also more commonin factories lacking nearby competitors, suggesting that intensified competition among factories forlabor deters sexual harassment (Truskinovsky et al. 2013, page 1).8

III. A THEORETICAL MODEL OF SEXUAL HARASSMENTWhile the empirical analysis of Truskinovsky et al. (2013) is suggestive, their analysis is notundertaken in the context of a formal model. Turning to the theoretical framework, we employ a 3tiered model in which there are three agents: a manager, a supervisor, and a worker. The role of themanager is to maximize profits, determine the wage for the supervisor and worker, and choose adeterrent to sexual harassment in the form of a punishment. The role of the supervisor is to overseethe worker and choose the amount of sexual harassment. The role of the worker is to choose theamount of work effort contributed to production.Our objective is to characterize the profit-maximizing incentive structure. The results will in turnsuggest possible interventions aimed at reducing the occurrence of sexual harassment in the factory.The optimization problem for the factory is analyzed under three different but typical cases ofincentive structure: (1) piece rate, (2) salary, and (3) deterrent of sexual harassment.We assume that the worker and supervisor maximize utility within the incentive structure chosenby the manager. The factory manager maximizes profits subject to technology, output price and theparticipation constraints of both the worker and supervisor. The income for the worker is determinedby a fixed income 𝛼 and piece rate 𝛽. The income for the supervisor is also determined by a fixedincome 𝛿, piece rate 𝛾, and the negative deterrent (𝑡) of sexual harassment.To allow for empirical determination of the impact of sexual harassment on productivity, weassume that sexual harassment might have a positive or negative effect on factory production. Factoryoutput (𝑞) is the consequence of the worker’s effort (e) minus the amount of sexual harassment(𝑧) multiplied by a productivity parameter 𝜃 that represents the positive or negative effect of sexualharassment on output. That is,(1)𝑞 min{𝑘, 𝑒 𝜃𝑧}.9

The total cost function is given by 𝑇𝐶 𝑇𝐶 (𝑞, 𝛼, 𝛽, 𝛾, 𝛿, 𝑟), where 𝑟 is the expenditure on one unitof capital (𝑘).The participation constraint for workers is(2)̅𝑤 ,(𝛼 𝛽𝑞)(𝑧̅ 𝑧)(𝑒̅ 𝑒) 𝑧 𝜎 𝑈where the left hand side of the constraint is the utility function for workers, (𝑧̅ 𝑧) reflects the̅𝑤 is thedisutility from sexual harassment, and (𝑒̅ 𝑒) reflects the disutility from work. 𝑈̅𝑤 atreservation utility, the utility obtainable in the next best alternative. If workers cannot realize 𝑈̅𝑤 is multiplied by 𝑧 𝜎 to reflect the possibility that a worker’swork, they will choose to quit. 𝑈perception of alternative opportunities may be affected by sexual harassment. If sexual harassmentdecreases a worker’s ability to react, then their reservation utility, the right hand side of the constraint,will be lower. Workers will choose the amount of effort (e) to maximize utility in equation (1) subjectto the incentive structure established by the manager.The participation constraint for supervisors is(3)̅𝑠 ,(𝛿 𝛾𝑞 𝑡𝑧)𝑧 (𝑝̂ 𝑧𝑛 𝑧)2 𝑈where the left hand side of the constraint is the utility function for supervisors from factory work. Itincludes three parts: money income, sexual gratification, and deviation of sexual harassment from aperceived norm. The first part (𝛿 𝛾𝑞) is the money income for supervisors and 𝑡𝑧 is the dollarvalue equivalent to the supervisor of the deterrent action taken by the firm to suppress sexualharassment. The total money compensation for the supervisor is then (𝛿 𝛾𝑞 𝑡𝑧) , which ismultiplied by the amount of sexual harassment (𝑧) to reflect the supervisor’s gain in utility fromsexual harassment.The second part (𝑝̂ 𝑧𝑛 𝑧)2 is a social psychological factor that reflects disutility arising fromdeviation from the perceived social norm related to sexual harassment. The perception of the norm,𝑧𝑛 , is affected by the supervisor’s sense of power, 𝑝̂ . It reflects the cultural phenomenon or toleranceof sexual harassment within the factory. (𝑧𝑛 𝑧) measures how far the supervisor’s actual sexualharassment behavior is from the norm. 𝑝̂ 𝑧𝑛 is the supervisor’s own perception of the norm. Thechosen functional form indicates that power magnifies the supervisor’s perceived social tolerance of10

sexual harassment, as we assume that the more power a supervisor has, the higher the amount ofsexual harassment will be perceived as the norm. In other words, the power of the supervisor changeshow he perceives (𝑧𝑛 𝑧), the difference between his actual level of sexual harassment and thesocial norm. If (𝑝𝑧𝑛 𝑧) 0, (𝑝̂ 𝑧𝑛 𝑧)2 measures the mental discomfort of the supervisor as thelevel of 𝑧 rises above or falls below the perceived norm of acceptable behavior.̅𝑠 is the reservation utility of the supervisor. If realized utility is less than 𝑈̅𝑠 , the supervisor will𝑈choose to quit. The supervisor chooses the amount of sexual harassment 𝑧 by maximizing (2) subjectto the incentive structure implemented by the manager.Factory profits are the consequence of output times the price of output (𝑝) plus revenue fromthe fine on sexual harassment minus total factor cost. The profit function for the manager is(4)𝜋 𝑝𝑞 𝑡𝑧 (𝛼 𝛽𝑞) (𝛿 𝛾𝑞) 𝑟𝑘,where 𝑝𝑞 is production revenue, (𝛼 𝛽𝑞) is the worker’s income, (𝛿 𝛾𝑞) is the supervisor’sincome, and 𝑟𝑘 is the capital expenditure. The output market is assumed to be perfectly competitive,implying price-taking by the firm. Managers will choose 𝛼, 𝛽, 𝛿, 𝛾, and 𝑡 to maximize profits givenby equation (3) subject to the worker’s and supervisor’s participation constraints.The analysis focuses on two questions. First, do misaligned incentives within the firm promotesexual harassment that lowers firm profits? The second is: what are the roles that deterrents to sexualharassment in the form of punishment, norms, and power play in achieving the profit-maximizing levelof sexual harassment? To simplify the solution, we first assume that piece rate (𝛽) for the worker isequal to zero. We begin by assuming that the factory does not deter sexual harassment through t, 𝑧𝑛or 𝑝̂ . We then turn to the case in which supervisor pay incentives are misaligned with the manager,but punishment on sexual harassment is introduced.Case I: 𝜷 𝟎, 𝜸 𝟎, 𝒕 𝟎When 𝛽 0, there is no link between work effort and pay for the worker. Rather, we assumethat the worker will only exert 𝑒0 effort, which is the minimum amount of effort required to earn thebase rate income 𝛼. So, e is given by(5)𝑒 𝑒0 .11

Since𝑞 𝑒 𝜃𝑧, we have 𝑞 𝑒0 𝜃𝑧.The supervisor chooses actual 𝑧 to maximize utility by solving the programmax2{𝑧} 𝑈𝑠 (𝛿 𝛾𝑞)𝑧 (𝑝̂ 𝑧𝑛 𝑧)(6a)which yields first order condition(6b) 𝑈𝑠 𝑧 2(1 𝛾𝜃)𝑧 2𝑝̂ 𝑧𝑛 𝛿 𝛾𝑒0 0and utility maximizing sexual harassment(6c) 𝑧 2𝑝̂𝑧𝑛 𝛿 𝛾𝑒02(1 𝛾𝜃)which can be rewritten as(6c’) 𝛿 2𝑧(1 𝛾𝜃) 2𝑝̂ 𝑧𝑛 𝛾𝑒0 .When solving the manager’s problem with the Lagrange method, the worker’s participationconstraint requires that the manager set the compensation for the worker high enough to achieve thereservation utility. The worker’s reservation utility constraint is binding if the Lagrange multipliers arenonzero. Substituting (5) into (2) yields an inequality that constrains the manager’s choice of 𝛼:(7)̅𝑤 𝛼(𝑒̅ 𝑒0 )(𝑧̅ 𝑧) 𝑒̿ 𝛼 (𝑧̅ 𝑧),𝑧𝜎 𝑈where𝑒̿ 𝑒̅ 𝑒0 .Similarly for the supervisor constraint, by substituting (5c’) for 𝛿 and substituting into (5a), theconstraint on the utility of the supervisor is given by̅𝑠 [𝛿 𝛾(𝑒0 𝜃𝑧)]𝑧 (𝑝̂ 𝑧𝑛 𝑧)2 (𝛾𝜃 1)𝑧 2 (𝑝̂ 𝑧𝑛 )2 .(8) 𝑈The base rate for workers (𝛼), piece rate for supervisors (𝛾), and the amount of sexual harassment (𝑧)is determined by the solution to(9)𝑚𝑎𝑥{𝛼, 𝛾, 𝑧} 𝜋 𝑝𝑞 𝛼 – (𝛿 𝛾𝑞) 𝑟𝑘subject to (7) and (8).The first order conditions for maximizing (9) subject to (7) and (8) are given by(10a) 𝜋 𝛼 1 𝜆1 𝑒̿ (𝑧̅ 𝑧) 0which can be rewritten as(10a’)1𝜆1 𝑒̿(𝑧̅ 𝑧),12

(10b) 𝜋 𝛾 𝜃𝑧 𝜆2 𝜃𝑧 2 0which can be rewritten as1(10b’)𝜆2 𝑧 ,(10c) 𝜋 𝜆1̅𝑤 𝛼𝑒̿ (𝑧̅ 𝑧) 0 𝑧𝜎 𝑈which can be rewritten as̅𝑧𝜎𝑈(10c’)𝛼 𝑒̿(𝑧̅ 𝑤𝑧),(10d) 𝜋 𝜆2̅𝑠 (𝛾𝜃 1)𝑧 2 (𝑝̂ 𝑧𝑛 )2 0 𝑈which can be rewritten as(10d’)𝛾 (10e) 𝜋 𝑧̅𝑠 𝑧 2 (𝑝̂𝑧𝑛 )2𝑈,𝜃𝑧 2and̅𝑤 𝜆1 𝑒̿ 𝛼 2𝜆2 (𝛾𝜃 1)𝑧 0 𝑝𝜃 𝛾𝜃 2 𝜆1 𝜎𝑍 𝜎 1 𝑈where 𝜆1 𝑎𝑛𝑑 𝜆2 are Lagrange multipliers for the constraints in equations (7) and (8). From (10a’)and (10b’), 𝜆1 𝑎𝑛𝑑 𝜆2 will not be equal to zero. Hence the constraints (7) and (8) bind with equality.By substituting (10a’), (10b’), (10c’), and (10d’) into (10e), the first order condition for maximizing𝜋 with respect to 𝑧 is given by(10e’) 𝜋 𝑧 𝑝𝜃 ̅𝑤𝜎𝑍𝜎 1 𝑈𝑒̿ (𝑧̅ 𝑧) ̅𝑤𝑧𝜎 𝑈𝑒̿ (𝑧̅ 𝑧)2 ̅𝑠𝑈𝑧2𝑝̂𝑧𝑛 2)𝑧 ( 1 0.From equation (10e’) above, we can observe the following relationships:a. When 𝑒̿ increases, 𝑧 increases. A fall in the disutility of effort raises sexual harassment.̅𝑤 increases, 𝑧 decreases. A rise in the worker’s reservation utility lowers sexualb. When 𝑈harassment.̅𝑠 increases, 𝑧 increases. A rise in the supervisor’s reservation utility raises sexualc. When 𝑈harassment.13

d. When the perceived tolerance for sexual harassment rises either because of a relaxation in thenorm, 𝑧𝑛 , or a rise in the power asymmetry between the supervisor and the worker, 𝑝̂ , sexualharassment increases.Case II: 𝜷 𝟎, 𝜸 𝟎, 𝒕 𝟎We now turn to the case in which both the worker’s and supervisor’s pay incentives aremisaligned with the firm, but the firm chooses a deterrent to sexual harassment in the form of apunishment. Our solution strategy is the same as in Case I. Workers continue to exert effort 𝑒0 , whichis the minimum amount of effort to earn the base rate income 𝛼. So e is given by (4), 𝑒 𝑒0 .The supervisor chooses actual 𝑧 to maximize utility by solving the program(11a)max2{𝑧} 𝑈𝑠 (𝛿 𝑡𝑧)𝑧 (𝑝̂ 𝑧𝑛 𝑧)which yields first order condition(11b) 𝑈𝑠 𝑧 𝛿 2𝑝̂ 𝑧𝑛 2𝑧(1 𝑡) 0and utility maximizing sexual harassment(11c)𝑧 𝛿 2𝑝̂𝑧𝑛.2(1 𝑡)Equation (11c) can be inverted to solve for the tax rate(11c’)𝑡 𝛿 2𝑝̂𝑧𝑛 2𝑧.2𝑧From (11c), we know that sexual harassment is constrained by the tax and the norm. Undermisaligned incentives for the supervisor and no punishment on sexual harassment, the amount ofsexual harassment will still be constrained by the norm.To maximize profits, managers must set the compensation for workers at least high enough toachieve the reservation utility. Substituting (4) into (1) yields an equation that constrains 𝛼:(12)̅𝑤 𝛼(𝑒̅ 𝑒0 )(𝑧̅ 𝑧) 𝑒̿ 𝛼 (𝑧̅ 𝑧),𝑧𝜎 𝑈where𝑒̿ 𝑒̅ 𝑒0 .14

Similarly for the supervisor, substituting (10c) for t and substituting into (10a), the reservation utilityof supervisors is given by(13)̅𝑠 𝛿 𝑧 𝑝̂ 𝑧𝑛 𝑧 (𝑝̂ 𝑧𝑛 )2 .𝑈2The base rate for workers (𝛼), base rate for supervisors (𝛿), and the amount of sexual harassment (𝑧)is determined by the solution to(14)𝑚𝑎𝑥{𝛼, 𝛿, 𝑧} 𝜋 𝑝𝑞 𝑡𝑧 𝛼 – 𝛿 𝑟𝑘subject to (12) and (13).Formally, the firm is choosing the incentive structure, 𝛼, 𝛿, and 𝑡.However, in choosing𝛿 and 𝑡 , the manager is implicitly choosing 𝑧 as governed by equation (11c). The maximizationproblem given by equation (14) is more easily solved for 𝛼, 𝛿, and 𝑧, hence the reformulation of themanager’s decision problem as reflected in (14).The first order conditions for maximizing (14) subject to (12) and (13) are given by(15a) 𝜋 𝛼 1 𝜆1 𝑒̿ (𝑧̅ 𝑧) 0which is rewritten as1(15a’)𝜆1 𝑒̿(𝑧̅ 𝑧),(15b) 𝜋 𝛿𝑧2 1 𝜆2 0which is rewritten as2(15b’)𝜆2 𝑧 ,(15c) 𝜋 𝜆1̅𝑤 𝛼𝑒̿ (𝑧̅ 𝑧) 0 𝑧𝜎 𝑈which is rewritten as̅𝑧𝜎𝑈(15c’)𝛼 𝑒̿(𝑧̅ 𝑤𝑧),(15d) 𝜋 𝜆2̅𝑠 𝛿 𝑧 𝑝̂ 𝑧𝑛 𝑧 (𝑝̂ 𝑧𝑛 )2 0 𝑈2which is rewritten as15

(15d’)𝛿 (15e) 𝜋 𝑧̅𝑠 𝑝̂𝑧𝑛 𝑧 (𝑝̂𝑧𝑛 )2 ]2[𝑈𝑧and𝛿̅𝑤 𝜆1 𝑒̿ 𝛼 𝜆2 ( 𝑝̂ 𝑧𝑛 ) 0 𝑝𝜃 𝜆1 𝜎𝑍 𝜎 1 𝑈2where 𝜆1 𝑎𝑛𝑑 𝜆2 are Lagrange multipliers for the constraints in equations (12) and (13). From (15a’)and (15b’), 𝜆1 𝑎𝑛𝑑 𝜆2 will not be equal to zero. Hence the constraints (12) and (13) hold with equality.By substituting (14a’), (14b’), (14c’), and (14d’) into (14e), the first order condition of 𝜋 withrespect to 𝑧is given by 𝜋 𝑧(15e’) 𝑝𝜃 ̅𝑤𝜎𝑍𝜎 1 𝑈𝑒̿ (𝑧̅ 𝑧) ̅𝑤𝑧𝜎 𝑈𝑒̿ (𝑧̅ 𝑧)2 ̅𝑠2𝑈𝑧2𝑝̂𝑧𝑛 2)𝑧 2( 0.When comparing Case I and II, the 𝑧 solved from equation (15e’) (𝛾 0, 𝑡 0) is higher thanthe 𝑧 solved from equation (10e’) (𝛾 0, 𝑡 0).1 It implies that active policies or programs such asa tax directly targeting sexual harassment are not as effective as aligning supervisor’s pay incentive tocombat sexual harassment. The interpretation is that the tax or fine on sexual harassment will lowerthe supervisor’s income, resulting in the factory not being able to satisfy the supervisor’s reservationutility at the current level of compensation. To compensate for the negative impact on the supervisor’sutility, the factory is forced to allow a certain amount of sexual harassment to maintain the currentsupervisor’s employment.1Equation (10e’) and (15e’) share the same terms expect for the termand the term̅𝑠𝑈𝑧2𝑝̂𝑧𝑛 2)𝑧 ( 1 in equation (10e’). Since̅𝑠2𝑈𝑧2 2(𝑝̂𝑧𝑛 2)𝑧 ̅𝑠𝑈𝑧2̅𝑠2𝑈𝑧2 (𝑝̂𝑧𝑛 2)𝑧 2(𝑝̂𝑧𝑛 2)𝑧in equation (15e’) 1, the 𝑧 solved fromequation (15e’) is higher than that solved from equation (10e’). It is solved by indirect comparison methodbetween the two equations rather than directly solving out 𝑧 from either equation. Specifically, the equation witha higher positive term will require a higher negative term in absolute value to compensate in order to get theequation equal to zero. Bo

As a consequence, reducing sexual harassment is seen as beneficial from a management or performance perspective. Kisa et al. (2008) conducted sexual harassment research on nurses working in Turkish hospitals. Women in health care professions are primary targets of unwelcome sexual attention due to their subordinate positions and low status and .

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