KTH/CESIS Working Paper Series in Economics and Institutions of Innovation
New firms and labor market entrants: Is there a wage penalty for employment in new firms?
() and Gulzat Zhetibaeva Elvung
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; (follow links to similar papers)
JEL-Codes: C21; J21; J31; M13; (follow links to similar papers)
18 pages, June 14, 2013
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