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

Kristina Nyström and Gulzat Elvung

No 319, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

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.

Keywords: new firms; labor market entrants; wage penalty; propensity score matching; average treatment effect (search for similar items in EconPapers)
JEL-codes: C21 J21 J31 M13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2013-06-14
New Economics Papers: this item is included in nep-cse, nep-ent, nep-lab, nep-lma and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: New firms and labor market entrants: Is there a wage penalty for employment in new firms? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0319

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