Advanced Search
MyIDEAS: Login

New firms and labor market entrants: Is there a wage penalty for employment in new firms?

Contents:

Author Info

  • Nyström, Kristina

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Elvung, Gulzat Zhetibaeva

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

In this paper, we explore the role of new firms as an entry point to the labor market. Because the vast majority of new firms are short-lived, it is a risky decision to accept employment in a new venture. It can be argued that individuals with little (or no) labor market experience are more willing to accept the high risks associated with employment in new firms. Hence, new firms may work as an entry point to the labor market. Nevertheless, some research concludes that one disadvantage of employment in a new firm is that new firms pay less (Shane, 2009). However, this empirical conclusion is primarily based on literature on the wage penalty of small firms. In this paper, we study whether the wage penalty of employment in a new firm persists if we focus solely on labor market entrants. In the empirical analysis, we employ an employer-employee matched dataset that covers the Swedish population during the period from 1998-2008. We use the Propensity Score Matching (PSM) method to study the wage differences between labor market entrants employed in new and incumbent firms. We find an average wage penalty of 2.9 percent for labor market entrants employed in new firms over the studied period.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp319.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 319.

as in new window
Length: 18 pages
Date of creation: 14 Jun 2013
Date of revision:
Handle: RePEc:hhs:cesisp:0319

Contact details of provider:
Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
More information through EDIRC

Related research

Keywords: new firms; labor market entrants; wage penalty; propensity score matching; average treatment effect;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Schnabel, Claus & Kohaut, Susanne & Brixy, Udo, 2004. "Do newly founded firms pay lower wages? First evidence from Germany," Discussion Papers 28, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  2. Richard B. Freeman & Birgitta Swedenborg & Robert Topel, 2010. "Reforming the Welfare State: Recovery and Beyond in Sweden," NBER Books, National Bureau of Economic Research, Inc, number free05-1.
  3. Arnaud Chevalier & Colm Harmon & Vincent O'Sullivan & Ian Walker, 2005. "The Impact of Parental Income and Education on the Schooling of their Children," Studies in Economics 0504, Department of Economics, University of Kent.
  4. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  5. Paige Ouimet & Rebecca Zarutskie, 2013. "Who works for startups? The relation between firm age, employee age, and growth," Finance and Economics Discussion Series 2013-75, Board of Governors of the Federal Reserve System (U.S.).
  6. Kristina Nyström, 2007. "Patterns and determinants of entry and exit in industrial sectors in Sweden," Journal of International Entrepreneurship, Springer, vol. 5(3), pages 85-110, December.
  7. Kaiser, Ulrich & Malchow-Møller, Nikolaj, 2011. "Is self-employment really a bad experience?: The effects of previous self-employment on subsequent wage-employment wages," Journal of Business Venturing, Elsevier, vol. 26(5), pages 572-588, September.
  8. Daniel Millimet, 2005. "Job search skills, employer size and wages," Applied Economics Letters, Taylor & Francis Journals, vol. 12(2), pages 95-100.
  9. C. Praag & Peter Versloot, 2007. "What is the value of entrepreneurship? A review of recent research," Small Business Economics, Springer, vol. 29(4), pages 351-382, December.
  10. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  11. Marco Caliendo & Sabine Kopeinig, 2005. "Some Practical Guidance for the Implementation of Propensity Score Matching," Discussion Papers of DIW Berlin 485, DIW Berlin, German Institute for Economic Research.
  12. Charles Brown & James L. Medoff, 2001. "Firm Age and Wages," NBER Working Papers 8552, National Bureau of Economic Research, Inc.
  13. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
  14. William A. Darity & Patrick L. Mason, 1998. "Evidence on Discrimination in Employment: Codes of Color, Codes of Gender," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 63-90, Spring.
  15. Michael Lechner, 2002. "Some practical issues in the evaluation of heterogeneous labour market programmes by matching methods," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 165(1), pages 59-82.
  16. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  17. Richard B. Freeman & Birgitta Swedenborg & Robert H. Topel, 2010. "Introduction to "Reforming the Welfare State: Recovery and Beyond in Sweden"," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 1-23 National Bureau of Economic Research, Inc.
  18. Becker, Sascha O. & Caliendo, Marco, 2007. "mhbounds – Sensitivity Analysis for Average Treatment Effects," IZA Discussion Papers 2542, Institute for the Study of Labor (IZA).
  19. Taubman, Paul, 1989. "Role of Parental Income in Educational Attainment," American Economic Review, American Economic Association, vol. 79(2), pages 57-61, May.
  20. Kenneth R. Troske, 1998. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Labor and Demography 9807001, EconWPA.
  21. Barbara Sianesi, 2004. "An Evaluation of the Swedish System of Active Labor Market Programs in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 133-155, February.
  22. Kenneth R. Troske & Kimberly Bayard, 1999. "Examining the Employer-Size Wage Premium in the Manufacturing, Retail Trade, and Service Industries Using Employer-Employee Matched Data," American Economic Review, American Economic Association, vol. 89(2), pages 99-103, May.
  23. Fredrik Heyman, 2007. "Firm Size or Firm Age? The Effect on Wages Using Matched Employer-Employee Data," LABOUR, CEIS, vol. 21(2), pages 237-263, 06.
  24. C. Jeffrey Waddoups, 2007. "Employer Size-wage Effects in Australia," LABOUR, CEIS, vol. 21(4-5), pages 809-835, December.
  25. Scott Shane, 2009. "Why encouraging more people to become entrepreneurs is bad public policy," Small Business Economics, Springer, vol. 33(2), pages 141-149, August.
  26. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  27. C. Mirjam van Praag & Peter H. Versloot, 2007. "What is the Value of Entrepreneurship? A Review of Recent Research," Tinbergen Institute Discussion Papers 07-066/3, Tinbergen Institute.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:cesisp:0319. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vardan Hovsepyan).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.