Sexual Harassment Arbitrage

by Johnny Debacle

Attractive people have a unique arbitrage opportunity. All thing being equal, they are more likely to be hired for a given position than a less attractive peer. But all things remaining equal, they are also more likely to be sexually harassed by their superiors than a less attractive comparable employee. This gives attractive people the opportunity to “double dip,” so to speak. They can gain employment and the ensuing compensation by virtue of their looks; then they can compound their returns by getting sexually harassed and filing multi-million dollar suits (see past analysis of Diana Bianchi and Ms. Kobayashi of Toyota).

We recommend that firms re-evaluate the implied costs of hiring attractive labor. It’s possible that external benefits of having an “office hottie” outweigh the expected value of sexual harassment litigation, but we deem this to be unlikely. A study we conducted using sophisticated envelope trend analysis illustrated that an “office hottie” added 20% production growth to a firm vs a comparable employee, but all-in labor costs were twice that of a comparable employee. A firm should be able to achieve an improved cost structure just by hiring less attractive employees. On a long term basis, as markets converge to efficiency, attractive people assets should see declining valuations. On a short term basis, attractive people assets can seek to increase their earnings by wearing suggestive outfits (miniskirts for women, bow ties/suspenders for men) and enticing their superiors.

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