Job Characteristics and Labor Market Discrimination in Promotions: New Theory and Empirical Evidence

Abstract

We present new theory and empirical evidence concerning racial discrimination in promotions. In our model, promotions signal worker ability. When tasks differ substantially across levels of a job hierarchy, the opportunity cost (in terms of foregone output) of not promoting qualified nonwhite workers is large, so employers are less likely to inefficiently retain these workers in lower-level jobs. Thus, given pre-promotion performance, the extent to which nonwhite workers have lower promotion probabilities should decrease when tasks vary more across levels. Also, the difference between white and nonwhite workers in the wage increase attached to promotion should diminish when tasks vary more across levels. We test these implications empirically using personnel data from a large U.S. firm and from the National Compensation Survey. Results support the theoretical model’s predictions concerning promotion probabilities, whereas support is mixed for the model’s predictions concerning the wage growth attached to promotions.

Keywords: Discrimination, Promotions, Asymmetric Information

JEL Classification: D82, J71