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Do newly founded firms pay lower wages? First evidence from Germany

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  • Schnabel, Claus
  • Kohaut, Susanne
  • Brixy, Udo

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 percent 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. -- Unter Verwendung eines kombinierten Firmen-Beschäftigten- Datensatzes für Deutschland analysiert dieser Beitrag die Lohnsetzung in einer Kohorte von neu gegründeten und anderen Betrieben im Zeitraum von 1997 bis 2001. Während theoretische Erklärungsansätze verschiedene Begründungen für höhere oder niedrigere Löhne in neu gegründeten Betrieben liefern, zeigen wir empirisch, dass Neugründungen ceteris paribus tendenziell niedrigere Löhne zahlen. Im Durchschnitt liegen die Löhne in Neugründungen 8 Prozent unter denen in vergleichbaren bestehenden Betrieben. Dieses negative Lohndifferenzial fällt in Ostdeutschland deutlich geringer aus als in Westdeutschland. Es zeigt sich, dass mit der Reifung der Betriebe im Zeitablauf das Lohndifferenzial zurückgeht.

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Bibliographic Info

Paper provided by Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics in its series Discussion Papers with number 28.

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Date of creation: 2004
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Handle: RePEc:zbw:faulre:28

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Web page: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english-version/
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Keywords: Wages; newly founded firms; linked employer-employee data; Germany;

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  1. 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, Elsevier, vol. 19(5), pages 795-821, April.
  2. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 253-90, February.
  3. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 671-98, November.
  4. Charles Brown & James L. Medoff, 2003. "Firm Age and Wages," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(3), pages 677-698, July.
  5. Brixy, Udo & Kohaut, Susanne, 1999. " Employment Growth Determinants in New Firms in Eastern Germany," Small Business Economics, Springer, Springer, vol. 13(2), pages 155-70, September.
  6. Heyman, Fredrik, 2004. "The Employer Age-Wage Effect: Evidence from Matched Employer-Employee Data," Working Paper Series, Trade Union Institute for Economic Research 193, Trade Union Institute for Economic Research.
  7. Kölling, 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).
  8. Claudio Michelacci & Vincenzo Quadrini, 2004. "Financial Markets and Wages," 2004 Meeting Papers, Society for Economic Dynamics 116, Society for Economic Dynamics.
  9. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  10. Gernandt, Johannes & Pfeiffer, Friedhelm, 2005. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 05-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Wagner, Joachim, 1994. "The Post-entry Performance of New Small Firms in German Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 141-54, June.
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