Creative Destruction? Local Business Conditions, Firm Age, and Wages.

Mahieu, Jeroen (2020): Creative Destruction? Local Business Conditions, Firm Age, and Wages.

Abstract

While a growing literature has examined the relationship between economic shocks and job creation in startups and established firms, little is known about the quality of these jobs. In this paper, I examine how fluctuations in local business conditions affect the wages of employees at startups and incumbent firms. I identify shocks to local business conditions using plausibly exogenous variation of hurricane strikes in U.S. coastal counties. I find that wages of startup employees increase substantially in response to negative shocks to local business conditions, while there is only a small raise in old firms. This effect does not appear to be driven by changes in supply or demand for labor. These findings are consistent with “cleansing” theories of downturns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Startups; Employee Compensation; Local Business Conditions; Entrepreneurship
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship

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