Quantifying the Role of Firms in Intergenerational Mobility

We quantify the role of firms in intergenerational mobility using administrative data from Israel. We decompose the intergenerational elasticity of earnings (IGE) into an individual-IGE and a firm-IGE using an AKM framework. The firm-IGE—reflecting the sorting of children from higher-income families into better-paying firms—accounts for 23 percent of the IGE. We then explore underlying mechanisms. While skill transmission explains part of the firm-IGE, roughly half cannot be accounted for by skill differences. Moreover, sector-level sorting explains a large share of the firm-IGE, indicating that structural barriers across sectors—rather than firm-level discrimination—are a key driver of intergenerational sorting.