Do Startup Employees Earn More in the Long Run?

Olav Sorenson,Michael S Dahl,Rodrigo Canales,M Diane Burton

doi:10.1287/orsc.2020.1371

Abstract

Evaluating the attractiveness of startup employment requires an understanding of both what startups pay and the implications of these jobs for earnings trajectories. Analyzing Danish registry data, we find that employees hired by startups earn roughly 17% less over the next 10 years than those hired by large, established firms. About half of this earnings differential stems from sorting—from the fact that startup employees have less human capital. Long-term earnings also vary depending on when individuals are hired. Although the earliest employees of startups suffer an earnings penalty, those hired by already-successful startups earn a small premium. Two factors appear to account for the earnings penalties for the early employees: Startups fail at high rates, creating costly spells of unemployment for their (former) employees. Job-mobility patterns also diverge: After being employed by a small startup, individuals rarely return to the large employers that pay more.

Highlights

Analyzing Danish registry data, we find that employees hired by startups earn roughly 17% less over the 10 years than those hired by large, established firms
We found all individuals who matched that individual exactly in terms of gender, year of birth, years of education, and prior occupation, and who moved in the same year as the focal individual, but to employers that had been operating for more than four years and that had more than 50 employees
For most of the 20th century, industrial policy focused on fostering the growth of large, established enterprises, titans of the global economy, with the idea that these juggernauts would provide good jobs and promote economic expansion (e.g., Johnson 1982 and Dertouzos et al 1989)

Summary

Introduction

To explore how these earnings differentials depend on startup success, we estimated them based on the size of the startup, in terms of number of employees, at the time that the focal individual joined the firm. Consistent with the splined estimates, the long-term earnings penalty associated with startup employment stems entirely from the employees who joined smaller startups.

Results

Conclusion