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

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

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.

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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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  1. Michelacci, Claudio & Quadrini, Vincenzo, 2005. "Financial Markets and Wages," CEPR Discussion Papers 4867, C.E.P.R. Discussion Papers.
  2. Gernandt, Johannes & Pfeiffer, Friedhelm, 2005. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," ZEW Discussion Papers 05-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Kölling, Arnd & Schnabel, Claus & Wagner, Joachim, 2002. "Establishment age and wages: evidence from German linked employer-employee data," Discussion Papers 13, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  4. Wagner, Joachim, 1994. "The Post-entry Performance of New Small Firms in German Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 141-54, June.
  5. repec:tpr:qjecon:v:112:y:1997:i:1:p:253-90 is not listed on IDEAS
  6. Brixy, Udo & Kohaut, Susanne, 1999. " Employment Growth Determinants in New Firms in Eastern Germany," Small Business Economics, Springer, vol. 13(2), pages 155-70, September.
  7. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  8. 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, vol. 19(5), pages 795-821, April.
  9. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  10. Heyman, Fredrik, 2004. "The Employer Age-Wage Effect: Evidence from Matched Employer-Employee Data," Working Paper Series 193, Trade Union Institute for Economic Research.
  11. Charles Brown & James L. Medoff, 2003. "Firm Age and Wages," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 677-698, July.
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