Does working at a start-up pay off?

Daniel Fackler,Claus Schnabel,Lisa Hölscher,Antje Weyh

doi:10.1007/s11187-021-00508-2

Abstract

Using representative linked employer-employee data for Germany, this paper analyzes short- and long-run differences in labor market performance of workers joining start-ups instead of incumbent firms. Applying entropy balancing and following individuals over ten years, we find huge and long-lasting drawbacks from entering a start-up in terms of wages, yearly income, and (un)employment. These disadvantages hold for all groups of workers and types of start-ups analyzed. Although our analysis of different subsequent career paths highlights important heterogeneities, it does not reveal any strategy through which workers joining start-ups can catch up with the income of similar workers entering incumbent firms.

Highlights

The role of newly founded firms, so-called start-ups, in structural change and job creation is a highly disputed topic both in scientific and political debates (Shane, 2009)
A first look already reveals that workers who joined a start-up in year zero perform worse in terms of all outcome variables over the whole observation period
1 3 the quantity of jobs created by newly founded firms, the implications of joining a start-up for the individual worker have not been analyzed in depth so far

Summary

Introduction

The role of newly founded firms, so-called start-ups, in structural change and job creation is a highly disputed topic both in scientific and political debates (Shane, 2009). Relatively few studies have analyzed the quality of these jobs from the viewpoint of the individual worker. Some of these studies suggest that job quality in start-ups may be questionable, but evidence so far is too scarce to make any definite statements (see the reviews by Block et al, 2018 and Nyström, 2021). Are there temporary or persistent advantages and disadvantages in terms of remuneration and (un)employment prospects from entering a start-up rather than an incumbent firm?

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Conclusion