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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.
