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New firms and labor market entrants: Is there a wage penalty for employment in new firms?
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.ORCID iD: 0000-0002-1692-8677
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.ORCID iD: 0000-0003-1173-0853
2014 (English)In: Small Business Economics, ISSN 0921-898X, E-ISSN 1573-0913, Vol. 43, no 2, 399-410 p.Article in journal (Refereed) Published
Abstract [en]

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 in Small Bus Econ 33:141-149, 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 to 2008. We use the propensity score matching 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 % for labor market entrants employed in new firms over the studied period.

Place, publisher, year, edition, pages
2014. Vol. 43, no 2, 399-410 p.
Keyword [en]
New firms, Labor market entrants, Wage penalty, Propensity score matching, Average treatment effect
National Category
Economics
Identifiers
URN: urn:nbn:se:kth:diva-144477DOI: 10.1007/s11187-014-9552-xISI: 000339333000009Scopus ID: 2-s2.0-84904203888OAI: oai:DiVA.org:kth-144477DiVA: diva2:713595
Note

QC 20140818

Available from: 2014-04-23 Created: 2014-04-23 Last updated: 2017-12-05Bibliographically approved
In thesis
1. Employment in New Firms: Mobility and Labour Market Outcomes
Open this publication in new window or tab >>Employment in New Firms: Mobility and Labour Market Outcomes
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis studies the role of new firms in the labour market and uses Swedish data to analyze labour mobility in new firms, including both transitions of workers into and from new firms. In particular, it focuses on employees’ wages in new firms and post-new firm employment labour market outcomes as transitions into long-term employment and entrepreneurship. 

This thesis consists of four essays. The first two essays concern labour mobility into new firms. The last two essays focus on post-new firm employment mobility.

The first essay explores the role of new firms as an entry point into the labour market for individuals with little (or no) labour market experience. The findings show that the wage penalty found in previous research, which includes more heterogeneous groups of employees, decreases once the focus is solely on labour market entrants. 

The second essay investigates whether there is a wage penalty for being employed at a new firm if the individual employee’s experience and status in the labour market are taken into account; this essay focuses on individuals who decide to switch jobs. The findings show that there is a wage penalty for being employed at a new firm; however, considering a random selection into new firms may underestimate the wage differentials.

The third essay studies the role that new firms play for the career path of their employees. In particular, this paper analyzes whether short-term employment in new firms (employment lasting less than one year) may serve as a stepping stone toward long-term employment (at least two years of employment with the same employer) for non-employed individuals. The findings indicate that short-term employment in new firms may serve as a stepping stone toward long-term employment.

The fourth paper examines the new firm effect on entrepreneurship, which the findings indicate is positive and statistically significant; this effect remains even after controlling for a worker's ability and shows that employees with both high and low levels of ability may transition to entrepreneurship.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2016. 55 p.
Series
TRITA-IEO, ISSN 1100-7982 ; 2016:10
Keyword
New firms, labour market entrants, wage penalty, job switchers, employment, long-term employment, stepping stone hypothesis, entrepreneurship, self-employment
National Category
Economics and Business Economics
Research subject
Economics
Identifiers
urn:nbn:se:kth:diva-192510 (URN)978-91-7729-099-5 (ISBN)
Public defence
2016-10-05, F3, Lindstedtsvägen 26, Stockholm, 10:00 (English)
Opponent
Supervisors
Note

QC 20160916

Available from: 2016-09-16 Created: 2016-09-13 Last updated: 2016-09-16Bibliographically approved

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Nyström, KristinaZhetibaeva Elvung, Gulzat

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