Endogenous Hierarchies Under Representational Concerns

This paper examines the following question: how do representational concerns affect a firm's hierarchical structure? Employers, facing a population of agents who can be distinguished by their productivity and identity, seek to assign them to positions in the organizations hierarchy that differ their sensitivity of output to productivity. It is observed that historically under-privileged workers feature predominantly in the lower ranks and earn systematically less in aggregate wages. It is shown that affirmative action like policies that are intended to reduce wage inequality, induce employers to adopt assignment policies that are more group egalitarian and choose an organizational hierarchy that is "flatter" than under Laissez-faire