On the benefits of preserving (sheer) prejudices in the workplace: Differentiation in promotions

This paper analyzes gender prejudices in promotion decisions, whereby female employees are less likely to be promoted compared to male employees. In a two-period promotion decision model with two possible distributions of abilities, we show that it can be profitable for a manager to sustain existing prejudices in the workplace. By promoting more often male candidates, employees can be induced to exert higher levels of effort in order to get a promotion. Consequently, the total output produced in the organization can be maximized. A key feature in our model is that employees are uncertain about their own ability. We use data from a questionnaire among students following the bachelor course Macro-economics at the Erasmus School of Economics in order to test for this main assumption. We compare the a priori self-perceived exam grade with the actual obtained test score. We find evidence for the well-known finding in social psychology that individuals tend to overestimate themselves compared to others. This holds both for the comparison between men and women and for the comparison between Economics and Econometrics students. Furthermore, the empirical research shows that female students have lower expectations and are less confident about their (absolute and relative) abilities compared to male students, although female students achieve on average better results.