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Do Newly Founded Firms Pay Lower Wages? First Evidence from Germany

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Author Info
Udo Brixy ()
Susanne Kohaut ()
Claus Schnabel ()

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Abstract

Using a linked employer–employee data set for Germany, this paper analyses wage setting in a cohort of newly founded and other establishments from 1997 to 2001. While theory provides alternative explanations for higher or lower wages in newly founded firms, we show empirically that start-ups tend to pay lower wages, ceteris paribus. On average, wages in newly founded establishments are 8% lower than in similar incumbent firms. This negative wage differential is substantially smaller in eastern than in western Germany. The wage differential is shown to decline over time as the newly founded firms become more mature. Copyright Springer 2007

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File URL: http://hdl.handle.net/10.1007/s11187-006-0015-x
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Publisher Info
Article provided by Springer in its journal Small Business Economics.

Volume (Year): 29 (2007)
Issue (Month): 1 (June)
Pages: 161-171
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:sbusec:v:29:y:2007:i:1:p:161-171

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Related research
Keywords: Wages; newly founded firms; linked employer-employee data; D21; J30;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wagner, Joachim, 1994. "The Post-entry Performance of New Small Firms in German Manufacturing Industries," Journal of Industrial Economics, Blackwell Publishing, vol. 42(2), pages 141-54, June. [Downloadable!] (restricted)
  2. Heyman, Fredrik, 2004. "The Employer Age-Wage Effect: Evidence from Matched Employer-Employee Data," Working Paper Series 193, Trade Union Institute for Economic Research. [Downloadable!]
  3. Wagner, Joachim, 1997. " Firm Size and Job Quality: A Survey of the Evidence from Germany," Small Business Economics, Springer, vol. 9(5), pages 411-25, October. [Downloadable!] (restricted)
  4. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November. [Downloadable!] (restricted)
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  5. Charles Brown & James L. Medoff, 2003. "Firm Age and Wages," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 677-698, July. [Downloadable!]
    Other versions:
  6. Koelling, Arnd & Schnabel, Claus & Wagner, Joachim, 2002. "Establishment Age and Wages: Evidence from German Linked Employer-Employee Data," IZA Discussion Papers 679, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Audretsch, David B. & van Leeuwen, George & Menkveld, Bert & Thurik, Roy, 2001. "Market dynamics in the Netherlands: Competition policy and the role of small firms," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 795-821, April. [Downloadable!] (restricted)
  8. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 253-90, February.
  9. Brixy, Udo & Kohaut, Susanne, 1999. " Employment Growth Determinants in New Firms in Eastern Germany," Small Business Economics, Springer, vol. 13(2), pages 155-70, September. [Downloadable!] (restricted)
  10. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier. [Downloadable!] (restricted)
  11. Claudio Michelacci & Vincenzo Quadrini, 2004. "Financial Markets and Wages," 2004 Meeting Papers 116, Society for Economic Dynamics.
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  12. Johannes Gernandt & Friedhelm Pfeiffer, 2006. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," Perspektiven der Wirtschaftspolitik, Blackwell Publishing, vol. 7(2), pages 147-172, 05. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Block, Jörn & Brockmann, Heiner & Klandt, Heinz & Kohn, Karsten, 2008. "Gründungshemmnisse in Marktmechanismen und Marktumfeld: Facetten empirischer Evidenz
    [Start-up Barriers in Germany: A Review of the Empirical Literature]    ," MPRA Paper 9358, University Library of Munich, Germany. [Downloadable!]
  2. Blien, Uwe & Kirchhof, Kai & Ludewig, Oliver, 2006. "Agglomeration effects on labour demand," IAB Discussion Paper 200628, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  3. Nikolaj Malchow-Møller & Bertel Schjerning & Anders Sørensen, 2009. "Entrepreneurship, Job Creation, and Wage Growth," CAM Working Papers 2009-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
    Other versions:
  4. Schnabel, Claus & Kohaut, Susanne & Brixy, Udo, 2008. "Employment stability of entrants in newly founded firms : a matching approach using linked employer-employee data from Germany," IAB Discussion Paper 200809, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
    Other versions:
  5. Romeu Gordo, Laura, 2006. "Compression of morbidity and the labor supply of older people," IAB Discussion Paper 200609, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  6. Blien, Uwe & Hirschenauer, Franziska & Phan, thi Hong Van, 2006. "Model-based classification of regional labour markets : for purposes of labour market policy," IAB Discussion Paper 200629, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  7. Brixy, Udo & Kohaut, Susanne & Schnabel, Claus, 2005. "How fast do newly founded firms mature? : empirical analyses on job quality in start-ups," IAB Discussion Paper 200502, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
    Other versions:
  8. Peter Thompson & Mihaela Pintea, 2008. "Sorting, Selection, and Industry Shakeouts," Review of Industrial Organization, Springer, vol. 33(1), pages 23-40, August. [Downloadable!] (restricted)
    Other versions:
  9. Eckey, Hans-Friedrich & Schwengler, Barbara & Türck, Matthias, 2007. "Vergleich von deutschen Arbeitsmarktregionen," IAB Discussion Paper 200703, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  10. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers 008, Hanseatic University, Germany, Department of Economics. [Downloadable!]
    Other versions:
  11. Andreas Koch & Jochen Spaeth, 2009. "New Firms---Different Jobs? An Inquiry into the Quality of Employment in Start-ups and Incumbents," IAW Discussion Papers 50, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
  12. Alda, Holger & Bender, Stefan & Gartner, Hermann, 2005. "The linked employer-employee dataset of the IAB (LIAB)," IAB Discussion Paper 200506, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
  13. Kruppe, Thomas, 2006. "Die Förderung beruflicher Weiterbildung : eine mikroökonometrische Evaluation der Ergänzung durch das ESF-BA-Programm," IAB Discussion Paper 200621, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
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