The Inheritance of Employers and Nonlinearities in Intergenerational Earnings Mobility

Abstract

Our analysis of intergenerational earnings mobility modifies the Becker-Tomes model to incorporate the intergenerational transmission of employers, which is expected to increase the intergenerational earnings elasticity. The intergenerational transmission of employers 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 results demonstrate that the inheritance of employers can help explain observed nonlinearities in intergenerational earnings transmission, and particularly the preservation of economic status at the very top of the earnings distribution.