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Early literacy skills are critical to the educational outcomes of young students. Accordingly, 19 states have early literacy policies that require grade retention for underperforming readers at the end of third grade. However, there is mixed evidence about retention's effectiveness and concerns that retention may disproportionately impact traditionally disadvantaged students. We examine retention outcomes under Michigan's early literacy law. We find that Black and economically disadvantaged students are more frequently eligible for retention and retained than their peers. However, after controlling for students' test performance, we find no evidence that districts retain Black students at significantly higher rates than similarly performing students. However, we still find that districts disproportionately retain economically disadvantaged students through a regression discontinuity design.