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

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  • 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.

Suggested Citation

  • Nyström, Kristina & Elvung, Gulzat Zhetibaeva, 2013. "New firms and labor market entrants: Is there a wage penalty for employment in new firms?," Working Paper Series in Economics and Institutions of Innovation 319, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0319
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    Citations

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    Cited by:

    1. Dorner, Matthias & Fryges, Helmut & Schopen, Kathrin, 2015. "Wages in high-tech start-ups - do academic spin-offs pay a wage premium?," IAB Discussion Paper 201517, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. Dorner, Matthias & Fryges, Helmut & Schopen, Kathrin, 2017. "Wages in high-tech start-ups – Do academic spin-offs pay a wage premium?," Research Policy, Elsevier, vol. 46(1), pages 1-18.
    3. Nyström, Kristina, 2016. "Entrepreneurship after displacement: The transition and performance of entrepreneurial ventures created after displacement," Working Paper Series in Economics and Institutions of Innovation 443, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    4. Brixy, Udo & Murmann, Martin, 2016. "The growth and human capital structure of new firms over the business cycle," IAB Discussion Paper 201642, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Welter, Friederike & Levering, Britta & May-Strobl, Eva, 2016. "Mittelstandspolitik im Wandel," IfM-Materialien 247, Institut für Mittelstandsforschung (IfM) Bonn.
    6. Kristina Nyström & Gulzat Zhetibaeva Elvung, 2015. "New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers," LABOUR, CEIS, vol. 29(4), pages 348-366, December.
    7. Charlie Karlsson & Peter Warda, 2014. "Entrepreneurship and innovation networks," Small Business Economics, Springer, vol. 43(2), pages 393-398, August.
    8. Brixy, Udo & Brunow, Stephan & D''Ambrosio, Anna, 2017. "Ethnic diversity in start-ups and its impact on innovation," IAB Discussion Paper 201725, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

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

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • 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
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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