DP15672 Discrimination in Promotion

Author(s): Francesco Nava, Anja Prummer
Publication Date: January 2021
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15672

Does an employer benefit from inducing differential value distributions for a promotion among his workers? Workers compete by exerting effort and higher effort corresponds to higher profit for the employer. Introducing inequalities in valuations makes workers' value more easily recognisable, reducing their information rent, which in turn increases effort. At the same time, inequalities lead to differences in promotion attainment, even if realised values are identical. This corresponds to a decrease in competition. We show that if value is re-distributed, the reduction in information rent outweighs the loss in competition, making discrimination between workers optimal.