Investigating employer responses to legislation on handling sexual harassment

by Sonia Bhalotra

As the UK Worker Protection Act comes into force in October 2024, research into similar policies in India shows the complexities of implementing it in the workplace.

Workplace sexual harassment is prevalent and causes considerable harm

In UK law, sexual harassment is defined as unwanted conduct that is sexual in nature and which violates a person’s dignity or creates an intimidating, hostile, degrading, or offensive environment for them. The definition may be widened to include offensive behaviour based on sex that may not be sexual in nature, for instance, a tendency for men to systematically undermine the work of women or exclude them from decision-making in the workplace may also be deemed sexual harassment.

More than half of all women in the UK report having experienced sexual harassment at some time in their careers. Although men also report being victims of sexual harassment, it is much more common that women are victims. Sexual harassment has been shown to harm women’s careers and, beyond this, to harm firm productivity and the economy.

As employers may not be fully incentivised to act upon prevention or redressal of sexual harassment, there is a clear case for policy intervention on grounds of both gender equality and efficiency.

The policy landscape in the UK

The Equality Act of 2010 made it unlawful for employers to harass their workers and, under this Act, employers were also made liable for perpetration of sexual harassment by their employees. The UK Worker Protection Act of 2023, effective from October 2024, is an Amendment of the Equality Act that additionally requires firms to take all reasonable steps to prevent sexual harassment in their workplaces. The Equality and Human Rights Commission (EHRC) is responsible for enforcement of the Equality Act.

To translate the law into practice, employers are required to implement training and grievance procedures. The law allows a range of approaches for dealing with harassment, from informal resolution to formal disciplinary process that may stretch to dismissal of the perpetrator. In practice, employers are not always committed to the spirit of the law, the EHRC typically does not impose fines on employers, employees are often unaware of their rights and, once the case is brought to a tribunal, employers tend to have a starting advantage as they are better able to afford legal representation. In view of the poor and patchy policy environment that victims of sexual harassment face, rates of reporting are low and, in most cases, there is no redressal for victims and no punishment of perpetrators. The situation is broadly similar in other countries.

Indian legislation designed to improve reporting and redressal of sexual harassment

In 2013, India passed the Prevention of Sexual Harassment Act (POSH) to encourage reporting and redressal of sexual harassment. The POSH Act mandated that all firms with more than 10 workers set up an internal complaints committee (ICC) to receive complaints concerning sexual harassment of women. The Act also requires that firms implement a training programme designed to encourage workers to recognise sexual harassment and make them aware of the penal consequences of perpetration of sexual harassment. The ICC is required to have at least one woman and one member external to the firm, to keep all complaints confidential, and to complete an enquiry into the complaint within 90 days of receiving a report. Importantly, ICC are empowered to issue consequences. The law further requires firms listed on the stock market to include the number of cases filed and disposed of under the Act in their annual report. It specifies that non-compliance or failure to redress can result in fines (of about £500 in Indian currency) levied on firms. Firms repeatedly identified as failing to follow the law may incur twice the first penalty and potential cancellation or non-renewal of their business license. National mandates such as POSH seek to harmonise policy across firms and make them accountable. France, Brazil, the Philippines and Pakistan are among countries with similar legislation. There appears to be no systematic evaluation of POSH or similar legislation that makes employers liable. One reason is that sexual harassment is not monitored in most countries, India included, and it is therefore difficult to find systematic data that would allow us to test whether the law reduced its incidence.

Our research

We investigated the behaviour of employers in the wake of India’s POSH legislation (see Bhalotra et al. 2023). In particular, we investigated whether businesses reacted to the POSH mandate by changing the size or gender composition of their workforce.

The employer’s decision problem

We modelled the policy as lowering the cost to women of reporting sexual harassment in the regulated sector and established for any given incidence, where the policy increases the number of cases being reported to the employer. Other things equal, employers will want to minimise the number of cases it receives. We show that it can achieve this by hiring fewer women relative to men.

The intuition for this is that while the probability that an individual woman experiences sexual harassment is increasing in the share of men, the number of incidents at the workplace-level is bell-shaped in the share of men. When the baseline share of women in the workplace is low (as in India), then the firm can reduce the risk of sexual harassment cases arising if it further decreases the share of women in the firm, with the risk trivially falling to zero when there are no women.

To test this hypothesis, we defined a business as regulated if, prior to the POSH Act, it had at least 10 workers. We then investigated changes in gender composition (and size) after the legislation in regulated relative to unregulated businesses.

Our findings

We found that implementation of the POSH Act resulted in a decline in the share of women in regulated (larger) businesses of 10 to 25 workers. The decline was larger and only statistically significant where the initial share of men was high.

In this way, the POSH mandate actually intensified gender segregation in the workplace, a risk factor for sexual harassment. Women became more likely to work in unregulated (smaller) businesses that have a higher share of men, lower wages, limited job protection and few amenities.

As most Indian businesses were growing in the analysis period, they adjusted the female-share of their workforce by increasingly hiring men instead of women. We have shown that they were also more likely to increase hours worked by men and to hire contract workers.

We found some distortion in the firm size distribution in line with the POSH regulation being sizecontingent. However, the observed decline in the employment of women relative to men is robust to excluding firms close to the threshold. We demonstrated that findings are similar irrespective of whether we use household survey data or longitudinal firm data. This increases our confidence in our estimates.

Policy implications

For its level of development, India has among the lowest female labour force participation rates in the world. Sexual harassment at work and on the streets is a significant constraint on women working. India’s POSH intended to improve the safety of women at work and, thereby, to increase their participation in the economy. It is an ambitious well-intentioned policy that our findings suggest has backfired by effectively displacing women from regulated sector firms where wages and worker amenities are better and where sexual harassment risk is lower (both because these firms have a higher share of women and because they are regulated by POSH). There are no easy solutions, but the broader evidence suggests that the female managers may be more likely to embrace the law and that the government might need to offer payroll tax cuts or other incentives to smaller firms to encourage them to retain and recruit women, while also taking steps to ensure a safer environment for women.

About the author

• Sonia Bhalotra is Professor of Economics at the University of Warwick, CAGE Theme Leader and member of the Institute of Fiscal Studies, Centre for Economic Policy Research, and CESifo.

Publication details

• Bhalotra, S., Medha Chatterjee, Kanika Mahajan and Daksh Walia. 2023. Firm Responses to Legislation on Handling Workplace Sexual Harassment. Mimeo, The University of Warwick

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