NEW YORK – While startups surpass older firms in job creation, most young firms don’t actually pay well. According to new research from Christian Moser, a Chazen Senior Scholar at Columbia Business School, pay is low at young firms for two reasons. First, workers who are employed at young firms tend to occupy lower-paying positions, even in subsequent jobs (note: “even when employed elsewhere” sounds like they’re holding down a second job simultaneously). Second, most new businesses never really take off to become the next Facebook or SpaceX. However, the research finds that firms that manage to attract more high-paid (and presumably more capable) workers at the time of founding face better survival and growth prospects.
Using data from the U.S. Census Bureau that span nearly two decades, Moser and his co-authors were able to track millions of workers’ earnings across employers. The study offers a new understanding of the relationship between young firms’ pay levels and long-term outcomes.
The results reveal that workers at startups, on average, earn about 25 percent less than the overall worker pool. But the research also shows that firms that manage to attract more capable workers at the time of founding are more likely to succeed in the future.
For example, newly established companies that survive for 10 or more years are shown to have started with workers who are, on average, paid 23 percent more compared to the overall worker pool. This pay premium may reflect the fact that young firms need to compensate for a less-stable employment environment, particularly given high startup failure rates.
The paper, “Pay, Employment, and Dynamics of Young Firms,” is authored by Christian Moser, Assistant Professor of Business and Chazen Senior Scholar at Columbia Business School; Tania Babina, Assistant Professor of Business at Columbia Business School; Wenting Ma, Assistant Professor of Finance at the University of Massachusetts Amherst; Paige Ouimet, Associate Professor of Finance at the University of North Carolina; and Rebecca Zarutskie, Assistant Director at the Federal Reserve Board of Governors.
For more information, please read the related Chazen Institute research brief (PDF).
About Columbia Business School
Columbia Business School is the only world–class, Ivy League business school that delivers a learning experience where academic excellence meets with real–time exposure to the pulse of global business. The School's transformative curriculum bridges academic theory with unparalleled exposure to real world business practice, equipping students with an entrepreneurial mindset that allows them to recognize, capture, and create opportunity in any business environment. The thought leadership of the School's faculty and staff, combined with the accomplishments of its distinguished alumni and position in the center of global business, means that the School's efforts have an immediate, measurable impact on the forces shaping business every day. To learn more about Columbia Business School's position at the very center of business, please visit www.gsb.columbia.edu.
About the Jerome A. Chazen Institute for Global Business
The Jerome A. Chazen Institute for Global Business is the interdisciplinary hub of global business knowledge at Columbia Business School. By injecting a global viewpoint into coursework, supporting research on global business, and sponsoring provocative forums where business leaders and policy-makers engage in vigorous debate, we pool the vast wealth of knowledge that exists within Columbia Business School, distill it for people who operate in the world’s marketplace, and provide a global network for lifelong learning.
About Christian Moser
Christian Moser is an Assistant Professor of Business and a Chazen Senior School at Columbia Business School. His research focuses on macroeconomics and labor economics, with additional interests in public economics. The common theme behind his research is to understand the determinants of earnings inequality and the role of redistributive policies.
Before joining Columbia, Moser received a Ph.D. in Economics from Princeton University where he was named a Fellow of Woodrow Wilson Scholars and was awarded the Towbes Prize for Outstanding Teaching.
About the researcher
Christian is an Assistant Professor within the Finance and Economics Division at Columbia Business School. His research focuses on macroeconomics and labor economics...Read more.