An Economic Theory of Glass Ceilings∗

Abstract. We characterize equilibrium promotion contracts offered by profit-maximizing firms that compete Bertrand-style at the hiring stage. In a model in which on average women face better non-market alternatives than men, we show that the promotion terms offered to women are necessarily worse than those of-fered to men, even though firms know that offering women the same terms as men would erase any gender differences conditional on promotion. Thus, this differ-ential treatment is not a consequence of gender differences in their propensity to leave senior jobs, but of competitive contracting in the labor market. We provide new insights into anti-discriminatory policy. (JEL Codes: D82, D86, C72.