Labor-market drivers of intergenerational earnings persistence

How does worker-firm sorting contribute to intergenerational persistence? Firm pay premia account for 36% of the intergenerational earnings elasticity in Sweden, rising to 50% with dynamic returns to firm-specific experience. Large pay gaps already open at labor market entry, as children from privileged backgrounds find more favorable entry points; they then climb the firm pay ladder faster, switching firms more often and gaining more per switch. Skill sorting explains this widening but not the initial gaps, consistent with networks and employer learning. Privileged children’s firms are also more desirable overall, a gap that keeps widening after pay gaps stabilize.