Firms and the Intergenerational Transmission of Labor Market Advantage

Pay inequality stems both from differences in workers’ individual characteristics and firm pay setting. Some firms capture more value or pass on a larger share of surplus to workers. Yet, intergenerational mobility research focuses on transmission of individual traits, neglecting how firms shape the inheritance of inequality. We use three decades of Swedish administrative data to decompose the intergenerational earnings correlation into firm pay premiums and worker effects. One quarter of the intergenerational earnings correlation at midlife is explained by sorting between firms with unequal pay. Employer inheritance accounts for a small share of this firm-based earnings transmission. Instead, high-education and high-occupation workers disproportionately work at high-paying firms. Parental referral networks and the inheritance of industry and labor market context play a supplementary role. As workers with high-education or high-status jobs increasingly benefit from high-paying firms, firm premiums constitute a central mechanism through which collective processes drive intergenerational earnings transmission.