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Employment in New Firms: Mobility and Labour Market Outcomes
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.ORCID iD: 0000-0003-1173-0853
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 [en]
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: urn:nbn:se:kth:diva-192510ISBN: 978-91-7729-099-5OAI: oai:DiVA.org:kth-192510DiVA: diva2:970502
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
List of papers
1. New firms and labor market entrants: Is there a wage penalty for employment in new firms?
Open this publication in new window or tab >>New firms and labor market entrants: Is there a wage penalty for employment in new firms?
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.

Keyword
New firms, Labor market entrants, Wage penalty, Propensity score matching, Average treatment effect
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-144477 (URN)10.1007/s11187-014-9552-x (DOI)000339333000009 ()2-s2.0-84904203888 (ScopusID)
Note

QC 20140818

Available from: 2014-04-23 Created: 2014-04-23 Last updated: 2016-09-13Bibliographically approved
2. New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers
Open this publication in new window or tab >>New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers
2015 (English)In: Labour, ISSN 1121-7081, E-ISSN 1467-9914, Vol. 29, no 4, 348-366 p.Article in journal (Refereed) Published
Abstract [en]

According to previous research, new firms pay lower wages. However, previous studies have been unable to control for the possibility that the opportunity costs of accepting employment at new firms may differ across individuals. In this paper, we investigate whether a wage penalty for being employed at a new firm exists if we take the individual employee's experience and status in the labour market into consideration. We focus on individuals who decide to switch jobs and use matched employee-employer data about all firms and employees in Sweden for the period 1998-2010. Our results show that the share of job transitions into lower wages are higher for those who switch to new firms compared with incumbent firms (40 per cent and 31 per cent, respectively). Our endogenous wage equation estimates indicate that being an involuntary job switcher has an equally negative effect on wages at both new and incumbent firms. However, the positive effect of education on wages is more pronounced for job switchers selecting into incumbent firms.

Place, publisher, year, edition, pages
Wiley-Blackwell, 2015
Keyword
PRIVATE-SECTOR WAGES, GENDER-DIFFERENCES, REGRESSION-MODEL, LABOR MOBILITY, RISK-AVERSION, CAREER CHANGE, DIFFERENTIALS, SEARCH; SIZE, DETERMINANTS
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:kth:diva-177159 (URN)10.1111/labr.12055 (DOI)000366905800002 ()2-s2.0-84946485712 (ScopusID)
Note

QC 20151117. QC 20160121

Available from: 2015-11-16 Created: 2015-11-16 Last updated: 2016-09-13Bibliographically approved
3. The effect of employment in new firms on a career path: Is it a stepping stone toward long-term employment?
Open this publication in new window or tab >>The effect of employment in new firms on a career path: Is it a stepping stone toward long-term employment?
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Previous research shows that new firms provide unstable employment because the risk of failure of new firms is high. At the same time, new firms attract and employ a disproportionately larger share of individuals with weaker positions in the labour market. This paper studies the role new firms play in determining the career paths of their employees and analyses whether short- term employment in new firms (employment lasting less than one year) may serve as a stepping stone towards long-term employment (at least two years of employment with the same employer) for non-employed individuals. Individual-level data from a Swedish matched employee-employer database are used collected from five years (2001-2005). A propensity score analysis is used in the empirical analysis. The findings indicate that short-term employment in new firms may serve as a stepping stone towards a long-term employment for both women and men. Moreover, the new firm effect on the probability of long-term employment is positive even for new firm employees who leave their firms involuntarily due to firm closure.

National Category
Economics
Identifiers
urn:nbn:se:kth:diva-192518 (URN)
External cooperation:
Note

QC 20160914

Available from: 2016-09-13 Created: 2016-09-13 Last updated: 2016-09-14Bibliographically approved
4. The new firm effect on entrepreneurship
Open this publication in new window or tab >>The new firm effect on entrepreneurship
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper examines the new firm effect on entrepreneurship and investigates the new firm employee transition to entrepreneurship and controls for the worker's ability in terms of income residuals. For empirical analysis, dataset collected from Swedish matched employee-employer database from five different cohorts (2001-2005), is used and competing risk models are employed. The findings indicate that the new firm effect on entrepreneurship is positive and statistically significant and remains even after controlling for a worker's ability. Moreover, workers with the lowest and the high- est abilities are more likely to enter entrepreneurship. This effect on worker's ability is also true for the entrepreneurial transition among incumbent firm employees. In contrast, among new firm employees, women entering into entrepreneurship are drawn from the lowest and the next highest tails of the income residual distribution, while men entering into entrepreneurship are drawn only from the lowest tails of the income residual distribution.

Keyword
New firms, entrepreneurship, self-employment
National Category
Business Administration Economics
Research subject
Economics
Identifiers
urn:nbn:se:kth:diva-192519 (URN)
External cooperation:
Note

QC 20160914

Available from: 2016-09-13 Created: 2016-09-13 Last updated: 2016-09-14Bibliographically approved

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