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Pay, Employment, and Dynamics of Young Firms

Author

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  • Tania Babina
  • Wenting Ma
  • Christian Moser
  • Paige P. Ouimet
  • Rebecca Zarutskie

Abstract

Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.

Suggested Citation

  • Tania Babina & Wenting Ma & Christian Moser & Paige P. Ouimet & Rebecca Zarutskie, 2019. "Pay, Employment, and Dynamics of Young Firms," Opportunity and Inclusive Growth Institute Working Papers 21, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmoi:0021
    DOI: 10.21034/iwp.21
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    Cited by:

    1. Engbom, Niklas & Moser, Christian, 2020. "Firm Pay Dynamics," MPRA Paper 98477, University Library of Munich, Germany.
    2. Fackler, Daniel & Hölscher, Lisa & Schnabel, Claus & Weyh, Antje, 2020. "Does Working at a Start-Up Pay Off?," IZA Discussion Papers 13033, Institute of Labor Economics (IZA).
    3. Moser, Christian & Saidi, Farzad & Wirth, Benjamin & Wolter, Stefanie, 2020. "Credit Supply, Firms, and Earnings Inequality," MPRA Paper 100371, University Library of Munich, Germany.
    4. Marta Lachowska & Alexandre Mas & Raffaele Saggio & Stephen A. Woodbury, 2019. "Do firm effects drift? Evidence from Washington Administrative Data," Working Papers 629, Princeton University, Department of Economics, Industrial Relations Section..

    More about this item

    Keywords

    Young-firm pay premium; Selection; Worker and firm heterogeneity; Firm dynamics; Startups;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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