Parental Income in the Labour Market

Abstract

Are children of high-income families more likely to work at better-paying firms, and if so, why? To answer these questions, we use Canadian administrative data to construct an employee-employer-parent-child matched dataset, which we link to detailed educational records. We use these data to quantify the role of observable human capital (education) and social connection for firm sorting. We find that, in an accounting sense, access to high-paying employers explains roughly half of the transmission of income across generations, as measured by the income rank-rank relationship. Probing mechanisms contributing to the sorting of high-income children to high-paying employers, we find the explanatory power of education largely exceeds that of social connections. We further provide suggestive evidence that some children of high-income families receive preferential treatment when they work at firms their parents own, but the quantitative importance of this phenomenon for overall intergenerational income mobility remains limited.