DT 04-25 Blessing or curse? Evidence on the inheritance of employers for a developing country

This paper provides evidence on the empirical relevance of the inheritance of employers and parental networks as a potential mechanisms of transmission of economic advantage across generations in a segmented labor market as the Uruguayan case. The large size and the high-quality dataset -based on matched administrative tax and social security records- allow us to analyze in detail these channels. The estimates are based on OLS and to identify the causal effect of parents' informal networks on children's permanent earnings we employed instrumental variable approach. Our main findings are that the incidence of employer inheritance is economically significant, is positively associated with parents' earnings, and is particularly high at the top of parental distribution. Furthermore, the transmission of the employer is one of the main drivers of intergenerational income mobility. Finally parental informal network has an asymmetric effect on children permanent earnings: it becomes an advantage when the parents are at the top of the distribution -via wage premium-, but it is a disadvantage for those children at the bottom of the distribution.

Keywords: Intergenerational mobility; informal networks; inheritance of employers; non-linearities.