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

Listed author(s):
  • 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)

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.

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Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 319.

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Length: 18 pages
Date of creation: 14 Jun 2013
Handle: RePEc:hhs:cesisp:0319
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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

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