Working Paper

Pay, Employment, and Dynamics of Young Firms

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.

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

JEL Classification: D22; E24; J30; J31; M13;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Opportunity and Inclusive Growth Institute Working Papers

Publication Date: 2019-08-05

Number: 21

Pages: 57 pages