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Is there a startup wage premium? Evidence from MIT graduates

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  • Kim, J. Daniel

Abstract

While startups are the center of extensive policy discussion given their outsized role in job creation, it is not clear whether they create high quality jobs relative to incumbent firms. This paper investigates the wage differential between venture capital-backed startups and established firms, given that the two firm types compete for talent. Using data on MIT graduates, I find that non-founder employees at VC-backed startups earn roughly 10% higher wages than their counterparts at established firms. To account for unobserved heterogeneity across workers, I exploit the fact that many MIT graduates receive multiple job offers. I find that wage differentials are statistically insignificant from zero when individual fixed effects are included. This implies that much of the startup wage premium in the cross-section can be attributed to selection, and that VC-backed startups pay competitive wages for talent. To unpack the selection mechanism, I show that individual preferences for risk as well as challenging work strongly predict entry into VC-backed startups.

Suggested Citation

  • Kim, J. Daniel, 2018. "Is there a startup wage premium? Evidence from MIT graduates," Research Policy, Elsevier, vol. 47(3), pages 637-649.
  • Handle: RePEc:eee:respol:v:47:y:2018:i:3:p:637-649
    DOI: 10.1016/j.respol.2018.01.010
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    Cited by:

    1. Michael Roach & Henry Sauermann & John Skrentny, 2019. "Are Foreign Stem PhDs More Entrepreneurial? Entrepreneurial Characteristics, Preferences and Employment Outcomes of Native and Foreign Science & Engineering PhD Students," NBER Working Papers 26225, National Bureau of Economic Research, Inc.
    2. Ewens, Michael & Nanda, Ramana & Stanton, Christopher, 2020. "The Evolution of CEO Compensation in Venture Capital Backed Startups," SocArXiv rku3m, Center for Open Science.
    3. Nyström, Kristina, 2019. "Working for an entrepreneur: Heaven or Hell?," Ratio Working Papers 324, The Ratio Institute.
    4. Mahieu, Jeroen, 2020. "Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups," MPRA Paper 98557, University Library of Munich, Germany.

    More about this item

    Keywords

    Entrepreneurship; Hiring; Startups; Wage differential; Venture capital; Selection bias;

    JEL classification:

    • 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
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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