No. 1002: Biased Promotions

Daniel Ferreira London School of Economics, CEPR and ECGI Radoslawa Nikolowa Queen Mary University of London; School of Economics & Finance Elena S. Pikulina University of British Columbia

June 10, 2026

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Abstract

We present a model of biased promotions: workers differ only by a nonproductive label, “Blue” or “Red,” and firms favor Blue workers in promotion decisions. In equilibrium, worker self-sorting implies (partial) segregation and endogenous firm heterogeneity. Large, high-wage firms offer risky career paths, attracting workers from both groups, whereas small, low-wage firms offer stable careers that attract only Red workers. Promotion biases can benefit firms by weakening workers’ outside options and increasing industry profits. The model generates persistent group differences in promotions, earnings, and career trajectories as an equilibrium outcome of competitive labor markets.

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Keywords: Promotions, Discrimination, Inequality, Wages, Careers