April 2010

IZA DP No. 4876: Intergenerational Earnings Mobility and the Inheritance of Employers

revised version published as: 'The Inheritance of Employers and Nonlinearities in Intergenerational Earnings Mobility.' in: Kaushik Basu and Joseph Stiglitz (editors). Inequality and Growth: Patterns and Policy. London: Palgrave Macmillan. 2016, 1 - 34

Our analysis of intergenerational earnings mobility modifies the Becker-Tomes model to incorporate the intergenerational transmission of employers, which is predicted to increase the intergenerational elasticity of earnings. About 6% of young Canadian men have the same main employer as their fathers but this is positively related to paternal earnings and rises discretely at the top of the distribution. We use a switching regression model and identify two regimes associated with the inheritance of employers that have different intergenerational earnings elasticities. The model also demonstrates that the inheritance of employers plays a role in understanding observed nonlinearities.