Biased Promotions

We present a model of biased promotions in which firm size, wages, and internal labor markets are endogenously determined in a competitive labor market equilibrium. Workers value both wages and job amenities, and differ only by a non-productive label: "Blue" or "Red." Firms favor the Blue group in promotions. The equilibrium features partial segregation: large, high-wage firms employ workers from both groups and offer biased promotion opportunities, while small, low-wage firms hire only workers from the unfavored group and offer stable careers. Although individual firms prefer unbiased promotions, biased promotions collectively benefit firms by weakening worker bargaining power. The model endogenizes firm heterogeneity and helps explain why bias-driven gaps in promotions and earnings may persist even in competitive markets.