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Is there a startup wage premium? Evidence from MIT graduates

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  • Kim, J. Daniel

Abstract

While startups are the center of extensive policy discussion given their outsized role in job creation, it is not clear whether they create high quality jobs relative to incumbent firms. This paper investigates the wage differential between venture capital-backed startups and established firms, given that the two firm types compete for talent. Using data on MIT graduates, I find that non-founder employees at VC-backed startups earn roughly 10% higher wages than their counterparts at established firms. To account for unobserved heterogeneity across workers, I exploit the fact that many MIT graduates receive multiple job offers. I find that wage differentials are statistically insignificant from zero when individual fixed effects are included. This implies that much of the startup wage premium in the cross-section can be attributed to selection, and that VC-backed startups pay competitive wages for talent. To unpack the selection mechanism, I show that individual preferences for risk as well as challenging work strongly predict entry into VC-backed startups.

Suggested Citation

  • Kim, J. Daniel, 2018. "Is there a startup wage premium? Evidence from MIT graduates," Research Policy, Elsevier, vol. 47(3), pages 637-649.
    • Handle: RePEc:eee:respol:v:47:y:2018:i:3:p:637-649
    DOI: 10.1016/j.respol.2018.01.010
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    Cited by:

    1. Muralidharan Loganathan, 2022. "Competing for Technology Talent: Listed Companies Versus Funded Startups in India," International Journal of Global Business and Competitiveness, Springer, vol. 17(1), pages 64-72, June.
    2. Saerom (Ronnie) Lee & J. Daniel Kim, 2024. "When do startups scale? Large‐scale evidence from job postings," Strategic Management Journal, Wiley Blackwell, vol. 45(9), pages 1633-1669, September.
    3. Michael Roach & Henry Sauermann & John Skrentny, 2019. "Are Foreign Stem PhDs More Entrepreneurial? Entrepreneurial Characteristics, Preferences and Employment Outcomes of Native and Foreign Science & Engineering PhD Students," NBER Working Papers 26225, National Bureau of Economic Research, Inc.
    4. Michael Ewens Author-1-Name-First: Michael Author-1-Name-Last: Ewens & Ramana Nanda Author-2-Name-First: Ramana Author-2-Name-Last: Nanda & Christopher Stanton Author-3-Name-First: Christopher Author-, 2020. "Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship," Harvard Business School Working Papers 20-119, Harvard Business School, revised Sep 2023.
    5. Daniel Fackler & Lisa Hölscher & Claus Schnabel & Antje Weyh, 2022. "Does working at a start-up pay off?," Small Business Economics, Springer, vol. 58(4), pages 2211-2233, April.
    6. Jiayi Bao, 2022. "Social safety nets and new venture performance: The role of employee access to paid family leave benefits," Strategic Management Journal, Wiley Blackwell, vol. 43(12), pages 2545-2576, December.
    7. Ewens, Michael & Nanda, Ramana & Stanton, Christopher, 2020. "The Evolution of CEO Compensation in Venture Capital Backed Startups," SocArXiv rku3m, Center for Open Science.
    8. Kristina Nyström, 2021. "Working for an entrepreneur: heaven or hell?," Small Business Economics, Springer, vol. 56(2), pages 919-931, February.
    9. Li Jing & Huying Zhang, 2023. "Venture Capital, Compensation Incentive, and Corporate Sustainable Development," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    10. J. Daniel Kim, 2022. "Startup acquisitions, relocation, and employee entrepreneurship," Strategic Management Journal, Wiley Blackwell, vol. 43(11), pages 2189-2216, November.
    11. Joonkyu Choi & Nathan Goldschlag & John C. Haltiwanger & J. Daniel Kim, 2021. "Early Joiners and Startup Performance," NBER Working Papers 28417, National Bureau of Economic Research, Inc.
    12. Alan Bueno & Ben Hur Francisco Cardoso & Dominik Hartmann & Diogo Ferraz, 2024. "Does small firm dynamics matter for occupation diversity and job quality? Evidence from Brazil," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-26, December.
    13. Vera Rocha & Luca Grilli, 2024. "Early-stage start-up hiring: the interplay between start-ups’ initial resources and innovation orientation," Small Business Economics, Springer, vol. 62(4), pages 1641-1668, April.
    14. Olav Sorenson & Michael S. Dahl & Rodrigo Canales & M. Diane Burton, 2021. "Do Startup Employees Earn More in the Long Run?," Organization Science, INFORMS, vol. 32(3), pages 587-604, May.
    15. Cheng, Ruiqi & Yuan, Peng & Jiang, Gongxiong, 2023. "Growth, agglomeration externalities, and survival: Evidence from Chinese manufacturing start-ups," Journal of Business Research, Elsevier, vol. 154(C).
    16. Mahieu, Jeroen, 2020. "Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups," MPRA Paper 98557, University Library of Munich, Germany.
    17. Seung Hoon D. Chung & Simon C. Parker, 2023. "Founder affiliations: jobseeker reactions and impact on employee recruitment by start-up ventures," Small Business Economics, Springer, vol. 61(1), pages 259-283, June.
    18. Carlos Díaz-Santamaría & Jacques Bulchand-Gidumal, 2021. "Econometric Estimation of the Factors That Influence Startup Success," Sustainability, MDPI, vol. 13(4), pages 1-14, February.

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    More about this item

    Keywords

    Entrepreneurship; Hiring; Startups; Wage differential; Venture capital; Selection bias;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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