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Market-Based Solutions to Vital Economic Issues
Research
Feb 1, 2018

Entrepreneurial Wages

Abstract

We use US Census administrative data to document important facts about wages at entrepreneurial firms. As in earlier studies, we confirm lower average wages at new firms. However, nearly two thirds of this decline can be attributed to differences in worker quality at new firms. Moreover, once we control for firm fixed effects, absorbing time invariant firm quality, the wage difference between new and established firms further declines. This suggests that while new firms pay lower wages, on average, there is no dramatic increase in wages across the first years of a firm’s lifetime. Finally,with the addition of controls for observable time varying worker characteristics, we show that there is no economically significant difference in wages at new firms. These findings suggest that, for a given worker who has job opportunities at similar quality new and established firms, the expected wage penalty of going to work at the new firm are, on average, economically insignificant.


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