We analyze economic underrepresentation as a product of identity-dependent norms. The larger a group’s representation in an economic activity (e.g. education, high-status occupation), the more the activity is deemed ‘appropriate’ for its members. The dynamic feedback between a group’s representation and its norms of economic participation produces more severe and robust forms of inequality than previously found. Equality of opportunity almost never results in equal outcomes, even when groups have the same productivity. Minorities and historically discriminated groups tend to be underrepresented. Glass ceilings emerge endogenously, as identity concerns cause underrepresentation to escalate at senior levels. These problems are not easily solved using standard policy tools. Identity-based quotas reduce economic output and temporary interventions are insufficient. When identities are multidimensional (e.g. race and gender), reducing underrepresentation along one identity dimension can increase underrepresentation along another. Hence the common reductionist approach of addressing inequality dimension by dimension often fails. Our results suggest that underrepresentation may be an intractable outcome of group identity.

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