Social Progress and Corporate Culture

Social progress through improved treatment of minority groups (e.g., forbidding racial or sexual harassment) may or may not spread to corporate cultures through competition. We provide a theory of corporate culture, and we show that emergent, progressive corporate cultures can displace existing, regressive ones only when the prevailing wage gap is large between majority and minority groups. Wider cultural differences between groups make progress less likely. The model provides testable predictions on racial and gender wage gaps across firms.