Olav Sorenson, Yale University
Olav Sorenson, Yale University
TOM Seminar: The startup employee earnings gap: The long-term income consequences of joining small and young firms
TOM Seminar: The startup employee earnings gap: The long-term income consequences of joining small and young firms
26 Apr 201812:30 PM – 2:00 PM
Faculty and doctoral students only
Abstract:
Startups and other small firms have been found to pay less. But how do these differences influence long-term earnings as firms age and grow and as individuals move across employers? We explore how joining a startup as an employee affects the long-term earnings of an individual. Analyzing Danish registry data, we find that individuals who join startups earn roughly 25% less than the employees of large, established firms over the subsequent ten years. Although about half of this gap stems from sorting – from the fact that individuals who can command higher wages disproportionately work in large, established firms – a large share of who ends up employed at small and young firm appears to depend on chance and, even after accounting for the observed and unobserved characteristics of individuals, those employed at startups still earn less than their peers at large, established firms. If anything, moreover, these earnings disparities grow over time. These differences in earnings trajectories appear to stem from two factors: Young and small firms fail at higher rates, creating costly spells of unemployment for their employees. Job mobility patterns also diverge: Once employees join small firms they tend to stay in them, rarely returning to the larger, established employers that pay more.
Startups and other small firms have been found to pay less. But how do these differences influence long-term earnings as firms age and grow and as individuals move across employers? We explore how joining a startup as an employee affects the long-term earnings of an individual. Analyzing Danish registry data, we find that individuals who join startups earn roughly 25% less than the employees of large, established firms over the subsequent ten years. Although about half of this gap stems from sorting – from the fact that individuals who can command higher wages disproportionately work in large, established firms – a large share of who ends up employed at small and young firm appears to depend on chance and, even after accounting for the observed and unobserved characteristics of individuals, those employed at startups still earn less than their peers at large, established firms. If anything, moreover, these earnings disparities grow over time. These differences in earnings trajectories appear to stem from two factors: Young and small firms fail at higher rates, creating costly spells of unemployment for their employees. Job mobility patterns also diverge: Once employees join small firms they tend to stay in them, rarely returning to the larger, established employers that pay more.
Location:
Baker Library | Bloomberg Center 102
Organizer:
Bio:
Professor Sorenson's research interests include economic geography, economic sociology, entrepreneurship, organizational ecology, the sociology and management of science and technology, and business and corporate strategy. His most extensive line of research examines how social networks affect transactions, thereby shaping the geography and evolution of industries. Although Professor Sorenson has investigated these issues in a wide variety of settings, including banking, biotechnology, and footwear manufacturing, he has most extensively studied the entertainment industries and venture capital.