The American labor market is not a meritocracy. Facing a deluge of resumes, cover letters, and interviews, firms don’t always select the most qualified candidate. Often, they instead choose an employee’s child. Matthew Staiger, a scientist at Opportunity Insights, Harvard’s economic mobility research and policy institute, grew curious about these nepotistic hires. How many people begin their careers at the companies where a parent works? Are these young adults making more money than they would in the open market? And who is being left behind?
By analyzing publicly accessible census data, Staiger found that social connections have an astonishing impact on economic mobility. Before turning 30, nearly one-third of Americans will work at the same firm as a parent. In those jobs, these young adults earn almost 20 percent more than they otherwise would. And due to gender sorting—the tendency of men to work in higher-paying professions than women—and existing wage gaps, white men from high-income families benefit from nepotism far more than poorer people, women, and minorities do.
Staiger’s working paper considers the impact of nepotistic hires on intergenerational income “stickiness.” Simply put, does nepotism help keep rich Americans rich and poor Americans poor? “Before writing this paper,” Staiger said, “we had very little understanding of how important connections were in shaping rates of intergenerational mobility.”
The nepotistic economy is neither driven by parents hiring their children at small, family-owned businesses nor by Fortune 500 CEOs getting their children internships. Parental connections provide access to jobs at both small and large firms, and the hiring is driven by employees, not executives. Nepotistic hiring is primarily a blue-collar phenomenon and is especially prevalent in manufacturing. “There’s a set of kids out there who, absent help from their parents, would end up really struggling to find a decent-paying job, and they’d end up at something like a fast-food restaurant,” said Staiger. “But with the help of their parents, they end up at a construction firm or a manufacturing firm, a blue-collar-type job that often pay[s] much better than the minimum-wage-type jobs in the unskilled service sector.”
There are many reasons that a child could end up working in the same industry as a parent. Asked what his father does, Staiger laughed and said he’d been waiting for someone to pose that question. “He’s also an economist,” but “I don’t work at the same firm as him.”
Such intergenerational shared interests fail to explain why so many Americans work for the same company as a parent. Staiger found that people are 200 times more likely to work for a parent’s firm compared to similar companies in the same geographic area. That difference cannot be explained by inherent skills or similar passions. According to Staiger, “the tendency to work for a parent’s firm is explained by the use of social connections.”
Nepotistic hires are not inherently bad. In fact, employees who work at a parent’s firm stay longer than average. But these hiring patterns have negative consequences for productivity, diversity of representation, and equality of opportunity.
Despite staying at their firms longer, nepotistic hires may not be better workers than their peers. Staiger said that the higher retention rate “is driven by a reduction in the chance of quitting for another job as opposed to a reduction in the chance that they get fired.” People hired due to a parental connection may not be qualified to land a promotion at another firm so stick with their parent’s company because it is the best job they can get. “The young workers are clearly benefiting,” he said, whereas the firms aren’t necessarily getting access to the best workers.
While both sons and daughters get jobs at their parents’ firms, they are more likely to work for a parent of the same gender. This sorting greatly exacerbates the existing gender pay gap, since fathers are much more likely to work at high-paying jobs in construction or manufacturing. “About 10 percent of the [pay] gap between men and women when they start off their careers,” said Staiger, “is attributable to these disparities in how likely the young workers are to work with their fathers.”
Nepotistic hiring practices also enlarge the racial income gap. When their parents earn similar amounts, black and white women have similar economic outlooks, but another recent study from Opportunity Insights found that black men make less than white men whose parents have the same income. Staiger found that “four percent of this gap is attributable to the fact that white males are more likely to find a job via parental connections.”
Nepotistic hiring practices principally benefit people who already grew up well-off. Children with wealthy parents are more likely to work at a parent’s firm. “Access to jobs via your parental connections amplifies inequalities” across measures of income, across gender, and across race gaps, says Staiger. Given the “relatively low rates of economic mobility” in the United States, he thinks these findings should concern all Americans, regardless of their political beliefs. “Equality of opportunity is this key American ideal. And the fact that some people are getting access to jobs via the connections of their parents and some aren’t contradicts this ideal.”
Staiger hopes his research can help more people find high-paying jobs. Training programs like the national nonprofit Year Up mentor young adults without college degrees and match them to internships at well-known companies. This program has led to significant, lasting income increases for its participants, although Staiger acknowledges that it is very expensive to run and is limited in scale. His research shows that even without training and mentorship, “Access to high-paying jobs alone can produce long-lasting benefits.” In future research, he wants to focus on hiring and explore how firms can identify untapped potential without strictly relying on credentials or connections. Helping companies make better and more equitable hires, he says, “would be instrumental in identifying ways to help young workers from disadvantaged backgrounds to more successfully navigate the labor market.
