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Do newly founded firms pay lower wages? First evidence from Germany

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  • Schnabel, Claus
  • Kohaut, Susanne
  • Brixy, Udo

Abstract

Using a linked employer-employee data set for Germany, this paper analyses wage setting in a cohort of newly founded and other establishments from 1997 to 2001. While theory provides alternative explanations for higher or lower wages in newly founded firms, we show empirically that start-ups tend to pay lower wages, ceteris paribus. On average, wages in newly founded establishments are 8 percent lower than in similar incumbent firms. This negative wage differential is substantially smaller in eastern than in western Germany. The wage differential is shown to decline over time as the newly founded firms become more mature.

Suggested Citation

  • Schnabel, Claus & Kohaut, Susanne & Brixy, Udo, 2004. "Do newly founded firms pay lower wages? First evidence from Germany," Discussion Papers 28, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    • Handle: RePEc:zbw:faulre:28
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    References listed on IDEAS

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    More about this item

    Keywords

    Wages; newly founded firms; linked employer-employee data; Germany;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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