IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/98557.html
   My bibliography  Save this paper

Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups

Author

Listed:
  • Mahieu, Jeroen

Abstract

What drives job quality in startups? In this paper, I examine how fluctuations in local business conditions affect wages in startups and incumbent firms in the retail sector. I identify shocks to local business conditions using plausibly exogenous variation of hurricane strikes in U.S. coastal counties. I find that, on average, wages of startup employees increase in response to negative shocks to local business conditions. This effect does not appear to be driven by changes in supply or demand for labor. These findings are consistent with a “cleansing” effect of downturns, fostering the creation and retainment of more productive jobs, and driving out unproductive ones.

Suggested Citation

  • Mahieu, Jeroen, 2020. "Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups," MPRA Paper 98557, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98557
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/98557/1/MPRA_paper_98557.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/98864/8/MPRA_paper_98864.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hilary W. Hoynes & Diane Whitmore Schanzenbach, 2009. "Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program," American Economic Journal: Applied Economics, American Economic Association, vol. 1(4), pages 109-139, October.
    2. José Varejão & Pedro Portugal, 2007. "Employment Dynamics and the Structure of Labor Adjustment Costs," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 137-165.
    3. John Haltiwanger & Ron S. Jarmin & Robert Kulick & Javier Miranda, 2016. "High Growth Young Firms: Contribution to Job, Output, and Productivity Growth," NBER Chapters, in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 11-62, National Bureau of Economic Research, Inc.
    4. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
    5. Eric Strobl, 2011. "The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 575-589, May.
    6. Ryan A. Decker & John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2017. "Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 107(5), pages 322-326, May.
    7. Udo Brixy & Susanne Kohaut & Claus Schnabel, 2007. "Do Newly Founded Firms Pay Lower Wages? First Evidence from Germany," Small Business Economics, Springer, vol. 29(1), pages 161-171, June.
    8. Petr Sedláček & Vincent Sterk, 2017. "The Growth Potential of Startups over the Business Cycle," American Economic Review, American Economic Association, vol. 107(10), pages 3182-3210, October.
    9. Criscuolo, Chiara & Gal, Peter N. & Menon, Carlo, 2014. "The dynamics of employment growth: new evidence from 18 countries," LSE Research Online Documents on Economics 60286, London School of Economics and Political Science, LSE Library.
    10. Joonkyu Choi & Nathan Goldschlag & John Haltiwanger & J. Daniel Kim, 2019. "Founding Teams and Startup Performance," Working Papers 19-32, Center for Economic Studies, U.S. Census Bureau.
    11. Tatyana Deryugina & Laura Kawano & Steven Levitt, 2018. "The Economic Impact of Hurricane Katrina on Its Victims: Evidence from Individual Tax Returns," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 202-233, April.
    12. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1543-1592.
    13. Roy Thurik, 2014. "Entrepreneurship and the business cycle," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-90, October.
    14. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 805-852.
    15. Gustavo Manso, 2016. "Experimentation and the Returns to Entrepreneurship," The Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2319-2340.
    16. Ouyang, Min, 2009. "The scarring effect of recessions," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 184-199, March.
    17. Sophie Osotimehin & Francesco Pappadà, 2017. "Credit Frictions and The Cleansing Effect of Recessions," Economic Journal, Royal Economic Society, vol. 127(602), pages 1153-1187, June.
    18. Baker, Scott R. & Bloom, Nicholas, 2013. "Does uncertainty reduce growth? Using disasters as natural experiments," LSE Research Online Documents on Economics 121906, London School of Economics and Political Science, LSE Library.
    19. Pierre Azoulay & Benjamin F. Jones & J. Daniel Kim & Javier Miranda, 2020. "Age and High-Growth Entrepreneurship," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 65-82, March.
    20. Tatyana Deryugina, 2017. "The Fiscal Cost of Hurricanes: Disaster Aid versus Social Insurance," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 168-198, August.
    21. Haltiwanger, John & Hurst, Erik & Miranda, Javier & Schoar, Antoinette (ed.), 2017. "Measuring Entrepreneurial Businesses," National Bureau of Economic Research Books, University of Chicago Press, number 9780226454078, December.
    22. Sophie Osotimehin & Francesco Pappadà, 2017. "Credit Frictions and The Cleansing Effect of Recessions," Economic Journal, Royal Economic Society, vol. 127(602), pages 1153-1187, June.
    23. Daron Acemoglu & David H. Autor & David Lyle, 2004. "Women, War, and Wages: The Effect of Female Labor Supply on the Wage Structure at Midcentury," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 497-551, June.
    24. Ariel R. Belasen & Solomon W. Polachek, 2009. "How Disasters Affect Local Labor Markets: The Effects of Hurricanes in Florida," Journal of Human Resources, University of Wisconsin Press, vol. 44(1).
    25. John Haltiwanger & Erik Hurst & Javier Miranda & Antoinette Schoar, 2017. "Measuring Entrepreneurial Businesses: Current Knowledge and Challenges," NBER Books, National Bureau of Economic Research, Inc, number halt14-1, July.
    26. M. Diane Burton & Michael S. Dahl & Olav Sorenson, 2018. "Do Start-ups Pay Less?," ILR Review, Cornell University, ILR School, vol. 71(5), pages 1179-1200, October.
    27. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    28. Bernstein, Shai & Colonnelli, Emanuele & Malacrino, Davide & McQuade, Tim, 2022. "Who creates new firms when local opportunities arise?," Journal of Financial Economics, Elsevier, vol. 143(1), pages 107-130.
    29. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    30. Elliott, Robert J.R. & Liu, Yi & Strobl, Eric & Tong, Meng, 2019. "Estimating the direct and indirect impact of typhoons on plant performance: Evidence from Chinese manufacturers," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    31. Manuel Adelino & Song Ma & David Robinson, 2017. "Firm Age, Investment Opportunities, and Job Creation," Journal of Finance, American Finance Association, vol. 72(3), pages 999-1038, June.
    32. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
    33. Emek Basker & Javier Miranda, 2018. "Taken by storm: business financing and survival in the aftermath of Hurricane Katrina," Journal of Economic Geography, Oxford University Press, vol. 18(6), pages 1285-1313.
    34. Appel, Ian & Farre-Mensa, Joan & Simintzi, Elena, 2019. "Patent trolls and startup employment," Journal of Financial Economics, Elsevier, vol. 133(3), pages 708-725.
    35. Lee Branstetter & Francisco Lima & Lowell J. Taylor & Ana Venâncio, 2014. "Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal," Economic Journal, Royal Economic Society, vol. 124(577), pages 805-832, June.
    36. Kim, J. Daniel, 2018. "Is there a startup wage premium? Evidence from MIT graduates," Research Policy, Elsevier, vol. 47(3), pages 637-649.
    37. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
    38. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
    39. Charles Eesley, 2016. "Institutional Barriers to Growth: Entrepreneurship, Human Capital and Institutional Change," Organization Science, INFORMS, vol. 27(5), pages 1290-1306, October.
    40. 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.
    41. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
    42. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pawel Adrjan, 2018. "Risky Business? Earnings Prospects of Employees at Young Firms," Economics Series Working Papers 852, University of Oxford, Department of Economics.
    2. Babina, Tania & Ma, Wenting & Moser, Christian & Ouimet, Paige & Zarutskie, Rebecca, 2019. "Pay, Employment, and Dynamics of Young Firms," MPRA Paper 95382, University Library of Munich, Germany.
    3. Daniel Fackler & Lisa Hölscher & Claus Schnabel & Antje Weyh, 2022. "Does working at a start-up pay off?," Small Business Economics, Springer, vol. 58(4), pages 2211-2233, April.
    4. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    5. Daniel A. Dias & Carlos Robalo Marques, 2021. "Every Cloud Has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 352-376, April.
    6. Kozeniauskas, Nicholas & Moreira, Pedro & Santos, Cezar, 2022. "On the cleansing effect of recessions and government policy: Evidence from Covid-19," European Economic Review, Elsevier, vol. 144(C).
    7. Farboodi, Maryam & Kondor, Péter, 2023. "Cleansing by tight credit: Rational cycles and endogenous lending standards," Journal of Financial Economics, Elsevier, vol. 150(1), pages 46-67.
    8. Pelli, Martino & Tschopp, Jeanne & Bezmaternykh, Natalia & Eklou, Kodjovi M., 2023. "In the eye of the storm: Firms and capital destruction in India," Journal of Urban Economics, Elsevier, vol. 134(C).
    9. Cristina Fernández & Roberta García & Paloma Lopez-Garcia & Benedicta Marzinotto & Roberta Serafini & Juuso Vanhala & Ladislav Wintr, 2017. "Firm growth in Europe: An overview based on the COMPNET labour module," BCL working papers 107, Central Bank of Luxembourg.
    10. Bruhn, Simon & Grebel, Thomas, 2023. "Allocative efficiency, plant dynamics and regional productivity: Evidence from Germany," Ilmenau Economics Discussion Papers 172, Ilmenau University of Technology, Institute of Economics.
    11. Robert W. Fairlie & Javier Miranda, 2017. "Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 3-34, February.
    12. Bernstein, Shai & Colonnelli, Emanuele & Malacrino, Davide & McQuade, Tim, 2022. "Who creates new firms when local opportunities arise?," Journal of Financial Economics, Elsevier, vol. 143(1), pages 107-130.
    13. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    14. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    15. Jerch, Rhiannon & Kahn, Matthew E. & Lin, Gary C., 2023. "Local public finance dynamics and hurricane shocks," Journal of Urban Economics, Elsevier, vol. 134(C).
    16. Peter Bauer & Igor Fedotenkov & Aurelien Genty & Issam Hallak & Peter Harasztosi & David Martinez Turegano & David Nguyen & Nadir Preziosi & Ana Rincon-Aznar & Miguel Sanchez Martinez, 2020. "Productivity in Europe: Trends and drivers in a service-based economy," JRC Research Reports JRC119785, Joint Research Centre.
    17. Tatyana Deryugina, 2017. "The Fiscal Cost of Hurricanes: Disaster Aid versus Social Insurance," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 168-198, August.
    18. Ferreira, Miguel & Bermejo, Vicente & Wolfenzon, Daniel & Zambrana, Rafael, 2020. "Entrepreneurship and Regional Windfall Gains: Evidence from the Spanish Christmas Lottery," CEPR Discussion Papers 14638, C.E.P.R. Discussion Papers.
    19. HONJO Yuji & IKEUCHI Kenta & NAKAMURA Hiroki, 2019. "Do Entrepreneurs Have High Life Satisfaction? Evidence from Japan," Discussion papers 19083, Research Institute of Economy, Trade and Industry (RIETI).
    20. Johar, Meliyanni & Johnston, David W. & Shields, Michael A. & Siminski, Peter & Stavrunova, Olena, 2022. "The economic impacts of direct natural disaster exposure," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 26-39.

    More about this item

    Keywords

    Startups; Employee Compensation; Local Business Conditions; Entrepreneurship;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:98557. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.