Firm hierarchy and employment segregation

Firms organize their production processes differently, with consequences for various metrics of the economy. A so-far little explored issue is whether and how the deepness of firms, meaning the number of hierarchical levels, affects employment segregation in the labor market. We show how the Duncan index, a widely used measure of segregation, changes as firm organizations become deeper, first in a simplified flow model of the labor market, and then when transition probabilities are endogenized in a simulation model with internal promotions and external worker mobility across firms in a frictional environment. Our results suggest that a new hierarchical level can reduce segregation and serve as a stepping stone for disadvantaged workers in the "bottleneck" part of the career ladder. Yet, a new level can turn into a stumbling block for disadvantaged workers increasing segregation, if it is introduced in parts of the career ladder preceding the "bottleneck".