TY - JOUR
AU - van Praag, Mirjam,
AB - Abstract The idea that start-ups and young firms (hereafter entrepreneurial firms) create jobs is very popular among policy-makers and has led to a large number of studies investigating the effect of entrepreneurship on job creation. Recently, however, society and many players in the political arena have begun to care not only about job quantity and quantitative employment levels, but also about the quality of the jobs created. This study provides the first systematic literature review of research on the quantity and quality of jobs created by entrepreneurial firms. Our review shows that entrepreneurial firms have a long-lasting and positive effect on job creation. This effect seems to be due to a very small fraction of young, high-growth firms. With regard to job quality, however, the findings are less clear cut: while some studies indicate that entrepreneurial firms do create higher-quality jobs, a multitude of studies indicate that these jobs are of lower quality. We also show that entrepreneurial firms attract a different type of employee than established firms. For example, employees in entrepreneurial firms attach a lower weight to salary and job security than those in established firms, and instead assign greater value to responsibility, innovation, and challenges. Another finding is that many jobs in entrepreneurial firms are filled by formerly unemployed individuals. The review concludes with policy implications and avenues for future research. I. Introduction The idea that start-ups and young firms (hereafter entrepreneurial firms)1 create jobs is widely accepted among policy-makers (European Commission, 2017; US Census Bureau, 2017). At the same time, a large number of studies have been and are still being carried out to investigate the effect of entrepreneurship on job creation. This literature has matured to some extent and the overall conclusion is that entrepreneurial firms do indeed create jobs (e.g. Haltiwanger et al., 2013; Criscuolo et al., 2014; Lawless, 2014), although this effect is due only to a small fraction of young, high-growth firms. Recently, however, many players in the political arena, and society at large, have begun to care not only about job quantity and quantitative employment levels, but also about the quality of the jobs created. After successfully overcoming the financial crisis, and given the recent rise of employment levels across Europe, many individuals no longer have to worry about whether or not they have a job. Instead, people are increasingly concerned about the quality of their jobs. Over the last years, wage levels have remained fairly constant, and the political arena has become more and more receptive to discussions about equality of rewards for human and financial capital (e.g. Piketty, 2014). As a result, policy-makers, trade unions, and increasingly some economists, have begun to worry that workers and employees are not benefiting from the current strong economic situation to the same degree as capital owners (Piketty and Zucman, 2014). Such a situation of economic growth without wage increases can lead to rising levels of inequality in society. In addition to the redistribution of income from labour to capital, technological progress and the rise of information and digital technologies (e.g. artificial intelligence and robotics technologies) can also lead to higher inequality among employees. Brynjolfsson and McAfee (2012), for example, argue that information technologies can have a profound effect on jobs, skills, and wages. They posit that job polarization may cause the labour market to become divided into well paid, high skilled, technology-related jobs on the one hand, and low paid, low skilled, service-related jobs on the other hand (Goos and Manning, 2007; Goos et al., 2009). The rise and growth of technology-focused entrepreneurial firms may further accelerate such a trend of job polarization. The geographical distribution of high quality jobs may also be unequal across regions and can thus be a reason why some regions experience stronger economic growth than others. Thus, whether entrepreneurial firms create high quality jobs and in which regions they create such jobs is an important question when it comes to designing policy for regional development. To summarize, the contribution of entrepreneurial firms to society in terms of jobs may have to be re-evaluated. The evaluation should no longer focus exclusively on job quantity, but must also include job quality. The question is whether entrepreneurs and entrepreneurial firms contribute more value to society, compared to established firms, by creating jobs that bring greater benefits to workers. If this is the case, then the value of entrepreneurial firms for job creation might be even higher. If not, or if the contrary proves true, then conclusions based on measures of the effect of job creation by entrepreneurial firms might have to be adapted as well. Research about the effects of entrepreneurial firms on job quality has only recently begun. Our paper is the first overview of empirical studies that measure the effect of entrepreneurial firms on the quality of jobs created, relative to established firms. As a starting point, we briefly summarize the literature on the quantity of jobs created by entrepreneurial firms. From there, we systematically review research about the quality and type of jobs in entrepreneurial firms as well as research about the characteristics of individuals who join entrepreneurial firms as employees. In a nutshell, our review paper summarizes empirical evidence regarding three important and policy-relevant questions: To what degree do entrepreneurial firms create jobs? What is the quality of the created jobs? Who joins entrepreneurial firms as employees? II. Entrepreneurial firms and the quantity of jobs created It is well established in the literature that entrepreneurial firms play an important role in the creation of jobs. A multitude of empirical studies that use disaggregated (firm-level) data or aggregated (regional-level) data show a positive association between entrepreneurial firms and job creation (for an earlier summary of this literature, see Van Praag and Versloot, 2007). However, most of these studies treat small firms and entrepreneurial firms as synonymous when analysing their contributions to job creation. This misconception stems from the fact that entrepreneurial firms are often small, but only a minority of small firms are entrepreneurial (Decker et al., 2014). Therefore, more recent research has tried to disentangle the effects of firm size and firm age on job creation. Haltiwanger et al. (2013) use longitudinal US firm-level data and have provided the most robust assessment of the link between firm age, firm size, and job creation to date. They conclude that it is not small firms who create jobs, but rather a small fraction of young, high growth firms. Åstebro and Tåg (2017) confirm this result and show that the average entrepreneurial firm creates only a few jobs other than those for the founders themselves. When evaluating the overall effect of entrepreneurial firms on job creation, it is important to also consider that entrepreneurial firms may destroy jobs. Job destruction can occur in two ways: either directly via the exit of the entrepreneurial firm itself or by destroying existing jobs in established firms. The latter is usually referred to as the indirect effect of entrepreneurial firms on job creation. So far, most research does not account for this indirect effect on regional and industry employment levels. Another issue concerns the distinction between net and gross job creation that results from measuring job growth at different organizational levels. A firm may restructure its organization to create several new establishments, each of which may retain some portion of the firm’s existing employees. If one only looks at the establishment level, it appears that jobs have been created, whereas in reality they have only been re-allocated from one organizational unit to another.2Haltiwanger et al. (2013) take this important measurement issue into account and distinguish between net and gross job creation. In doing so, they not only find a positive effect of entrepreneurial firms on the gross number of jobs created, but are also able to show a positive effect on net job creation. Considering the issue of job destruction, they further show that the number of jobs destroyed due to firm exits is mostly offset by those created in surviving firms, leading to an overall positive effect of entrepreneurial firms on (net) job creation. However, as with most other research in this area, they are not able to account for the indirect effects of job destruction by entrepreneurial firms that occur in established firms. Building on the work of Haltiwanger et al. (2013), Lawless (2014) uses a sample of Irish firms to similarly show that young firms rather than small firms are responsible for the positive effect on net job creation. Similar results are obtained by Criscuolo et al. (2014) in an OECD project on the dynamics of employment (‘DynEmp’), which uses firm-level data from 18 countries over a 10-year period. In addition to these firm-level studies, several other studies show a positive association between the inception of entrepreneurial firms and job creation. This effect has been shown using regional-level data (e.g. Fritsch, 1997; Mueller et al., 2007; Acs and Mueller, 2007), industry-level data (e.g. Carod et al., 2008), and national-level data (e.g. Carree and Thurik, 2008). Interestingly, the effect on job creation is often distributed over a longer period of time. An immediate positive effect of entrepreneurial firms on job creation is usually followed by a negative effect after some years because the increased competitive pressure leads to job destruction in (inefficient) established firms and because of exits by entrepreneurial firms. In the long run, however, the overall effect is positive due to increased competitiveness in the surviving firms (Van Praag and Versloot, 2007). In summary, much of the positive effect of entrepreneurial firms on job creation has been misattributed to firm size (Haltiwanger et al., 2013; Lawless, 2014). There is, however, robust evidence at various levels (i.e. firms, industries, and regions) that entrepreneurial firms (as defined by firm age) do have a long-lasting and positive effect on job creation. This effect is, however, most likely due to a small sub-group of highly productive, high growth firms. Table 1 displays a selection of articles studying job creation by entrepreneurial firms. The table also contains the definitions of entrepreneurial firms used in the respective studies as well as the control variables that were used. Table 1: Selected studies on the quantity of jobs created Author(s) Content Data Definition of entrepreneurial firms Estimation method Control variables Acs and Mueller (2007, SBE) In the long run, higher new firm formation leads to job creation, directly and indirectly. Regional level, 320 US regions (1990–2003) New firms established in a given year, no size restriction Pooled OLS regression, regression with Almon polynomial lags Population density, prior start-up rate, different time lags Åstebro and Tåg (2017, JBVI) Most entrepreneurs are coming from employment and create mostly jobs for themselves. Those (few) jobs that are created for non-founders are often filled by formerly unemployed individuals. Firm level, Sweden (cohorts from 1995 to 1999 that are followed over a period 6 years) Firm age < 6 years Descriptive comparison at different points in time — Carod et al. (2008, SBE) Effect of new firm formation positive in the short term, negative in the medium term, and positive in the long term. Regional level and industry level, 11 industries, Spain (1978–96) New firms established in a given year, > 10 employees Fixed effects regression, polynomial distributed lag estimation — Carree and Thurik (2008, SBE) Effect of change in business ownership positive in the short term, negative in the medium term, and positive in the long term. Country level, 21 OECD countries (1972–2002) Change in business ownership, no size restriction Regressions with different lag structures — Criscuolo et al. (2014, WP) EFs are net creators of jobs, whereas old SMEs tend to destroy jobs. Firm level, OECD project ‘DynEmp’, 18 countries (2001–10) Firm age < 3 years, no size restriction Regression Sector, country, year. Fritsch (1997, SBE) Positive effect of new firm formation overall, positive short-term effect, but negative mid-term effect. Regional level, 75 Western German regions (1986–9) New firms that exist for more than 1 year, > 1 and < 50 employees Regression — Haltiwanger et al. (2013, RES) Positive effect of EF on gross and net job creation. Job creation is mostly driven by a small fraction of firms with high growth rates. Firm level, US Census Bureau’s Longitudinal Business Database (1976–2005) Firm age < 10, no size restriction Nonparametric regression approach — Lawless (2014, SBE) Positive effect of EF on net job creation. Strong inverse relationship between employment growth and size for entrepreneurial firms, but this declines very markedly for older age groups. Firm level, Annual Employment Survey Ireland (1972–2010) Firm age < 5, no size restriction Regression GDP growth, ownership, initial size Mueller et al. (2007, SBE) In the long run, new firm formation leads to job creation, directly and indirectly. Regional level, 59 UK regions (1981–2003) New firms per 10,000 inhabitants, no size restriction. OLS regression, Fixed effect regression, unrestricted and third-order polynomial Prior start-up rate, population density, wages, employment change Author(s) Content Data Definition of entrepreneurial firms Estimation method Control variables Acs and Mueller (2007, SBE) In the long run, higher new firm formation leads to job creation, directly and indirectly. Regional level, 320 US regions (1990–2003) New firms established in a given year, no size restriction Pooled OLS regression, regression with Almon polynomial lags Population density, prior start-up rate, different time lags Åstebro and Tåg (2017, JBVI) Most entrepreneurs are coming from employment and create mostly jobs for themselves. Those (few) jobs that are created for non-founders are often filled by formerly unemployed individuals. Firm level, Sweden (cohorts from 1995 to 1999 that are followed over a period 6 years) Firm age < 6 years Descriptive comparison at different points in time — Carod et al. (2008, SBE) Effect of new firm formation positive in the short term, negative in the medium term, and positive in the long term. Regional level and industry level, 11 industries, Spain (1978–96) New firms established in a given year, > 10 employees Fixed effects regression, polynomial distributed lag estimation — Carree and Thurik (2008, SBE) Effect of change in business ownership positive in the short term, negative in the medium term, and positive in the long term. Country level, 21 OECD countries (1972–2002) Change in business ownership, no size restriction Regressions with different lag structures — Criscuolo et al. (2014, WP) EFs are net creators of jobs, whereas old SMEs tend to destroy jobs. Firm level, OECD project ‘DynEmp’, 18 countries (2001–10) Firm age < 3 years, no size restriction Regression Sector, country, year. Fritsch (1997, SBE) Positive effect of new firm formation overall, positive short-term effect, but negative mid-term effect. Regional level, 75 Western German regions (1986–9) New firms that exist for more than 1 year, > 1 and < 50 employees Regression — Haltiwanger et al. (2013, RES) Positive effect of EF on gross and net job creation. Job creation is mostly driven by a small fraction of firms with high growth rates. Firm level, US Census Bureau’s Longitudinal Business Database (1976–2005) Firm age < 10, no size restriction Nonparametric regression approach — Lawless (2014, SBE) Positive effect of EF on net job creation. Strong inverse relationship between employment growth and size for entrepreneurial firms, but this declines very markedly for older age groups. Firm level, Annual Employment Survey Ireland (1972–2010) Firm age < 5, no size restriction Regression GDP growth, ownership, initial size Mueller et al. (2007, SBE) In the long run, new firm formation leads to job creation, directly and indirectly. Regional level, 59 UK regions (1981–2003) New firms per 10,000 inhabitants, no size restriction. OLS regression, Fixed effect regression, unrestricted and third-order polynomial Prior start-up rate, population density, wages, employment change Notes: EF = entrepreneurial firm, RES = Review of Economics and Statistics, SBE = Small Business Economics, SME = small and medium-sized enterprises, WP = working paper. View Large Table 1: Selected studies on the quantity of jobs created Author(s) Content Data Definition of entrepreneurial firms Estimation method Control variables Acs and Mueller (2007, SBE) In the long run, higher new firm formation leads to job creation, directly and indirectly. Regional level, 320 US regions (1990–2003) New firms established in a given year, no size restriction Pooled OLS regression, regression with Almon polynomial lags Population density, prior start-up rate, different time lags Åstebro and Tåg (2017, JBVI) Most entrepreneurs are coming from employment and create mostly jobs for themselves. Those (few) jobs that are created for non-founders are often filled by formerly unemployed individuals. Firm level, Sweden (cohorts from 1995 to 1999 that are followed over a period 6 years) Firm age < 6 years Descriptive comparison at different points in time — Carod et al. (2008, SBE) Effect of new firm formation positive in the short term, negative in the medium term, and positive in the long term. Regional level and industry level, 11 industries, Spain (1978–96) New firms established in a given year, > 10 employees Fixed effects regression, polynomial distributed lag estimation — Carree and Thurik (2008, SBE) Effect of change in business ownership positive in the short term, negative in the medium term, and positive in the long term. Country level, 21 OECD countries (1972–2002) Change in business ownership, no size restriction Regressions with different lag structures — Criscuolo et al. (2014, WP) EFs are net creators of jobs, whereas old SMEs tend to destroy jobs. Firm level, OECD project ‘DynEmp’, 18 countries (2001–10) Firm age < 3 years, no size restriction Regression Sector, country, year. Fritsch (1997, SBE) Positive effect of new firm formation overall, positive short-term effect, but negative mid-term effect. Regional level, 75 Western German regions (1986–9) New firms that exist for more than 1 year, > 1 and < 50 employees Regression — Haltiwanger et al. (2013, RES) Positive effect of EF on gross and net job creation. Job creation is mostly driven by a small fraction of firms with high growth rates. Firm level, US Census Bureau’s Longitudinal Business Database (1976–2005) Firm age < 10, no size restriction Nonparametric regression approach — Lawless (2014, SBE) Positive effect of EF on net job creation. Strong inverse relationship between employment growth and size for entrepreneurial firms, but this declines very markedly for older age groups. Firm level, Annual Employment Survey Ireland (1972–2010) Firm age < 5, no size restriction Regression GDP growth, ownership, initial size Mueller et al. (2007, SBE) In the long run, new firm formation leads to job creation, directly and indirectly. Regional level, 59 UK regions (1981–2003) New firms per 10,000 inhabitants, no size restriction. OLS regression, Fixed effect regression, unrestricted and third-order polynomial Prior start-up rate, population density, wages, employment change Author(s) Content Data Definition of entrepreneurial firms Estimation method Control variables Acs and Mueller (2007, SBE) In the long run, higher new firm formation leads to job creation, directly and indirectly. Regional level, 320 US regions (1990–2003) New firms established in a given year, no size restriction Pooled OLS regression, regression with Almon polynomial lags Population density, prior start-up rate, different time lags Åstebro and Tåg (2017, JBVI) Most entrepreneurs are coming from employment and create mostly jobs for themselves. Those (few) jobs that are created for non-founders are often filled by formerly unemployed individuals. Firm level, Sweden (cohorts from 1995 to 1999 that are followed over a period 6 years) Firm age < 6 years Descriptive comparison at different points in time — Carod et al. (2008, SBE) Effect of new firm formation positive in the short term, negative in the medium term, and positive in the long term. Regional level and industry level, 11 industries, Spain (1978–96) New firms established in a given year, > 10 employees Fixed effects regression, polynomial distributed lag estimation — Carree and Thurik (2008, SBE) Effect of change in business ownership positive in the short term, negative in the medium term, and positive in the long term. Country level, 21 OECD countries (1972–2002) Change in business ownership, no size restriction Regressions with different lag structures — Criscuolo et al. (2014, WP) EFs are net creators of jobs, whereas old SMEs tend to destroy jobs. Firm level, OECD project ‘DynEmp’, 18 countries (2001–10) Firm age < 3 years, no size restriction Regression Sector, country, year. Fritsch (1997, SBE) Positive effect of new firm formation overall, positive short-term effect, but negative mid-term effect. Regional level, 75 Western German regions (1986–9) New firms that exist for more than 1 year, > 1 and < 50 employees Regression — Haltiwanger et al. (2013, RES) Positive effect of EF on gross and net job creation. Job creation is mostly driven by a small fraction of firms with high growth rates. Firm level, US Census Bureau’s Longitudinal Business Database (1976–2005) Firm age < 10, no size restriction Nonparametric regression approach — Lawless (2014, SBE) Positive effect of EF on net job creation. Strong inverse relationship between employment growth and size for entrepreneurial firms, but this declines very markedly for older age groups. Firm level, Annual Employment Survey Ireland (1972–2010) Firm age < 5, no size restriction Regression GDP growth, ownership, initial size Mueller et al. (2007, SBE) In the long run, new firm formation leads to job creation, directly and indirectly. Regional level, 59 UK regions (1981–2003) New firms per 10,000 inhabitants, no size restriction. OLS regression, Fixed effect regression, unrestricted and third-order polynomial Prior start-up rate, population density, wages, employment change Notes: EF = entrepreneurial firm, RES = Review of Economics and Statistics, SBE = Small Business Economics, SME = small and medium-sized enterprises, WP = working paper. View Large III. Entrepreneurial firms and the quality of jobs created Even though various studies address the topic of job quality, there is not yet a general consensus in the literature on what constitutes job quality. Rather, the construct of job quality is often used as an umbrella term for a multitude of different job characteristics that provide utility to employees. These characteristics include (but are not limited to) compensation, job security, work content, job stress, job satisfaction, and the employment contract (Osterman, 2013). Thus, job quality is determined to a large extent by employers’ decisions on employee working conditions (Osterman, 2013). To summarize the prevalent research concerning the quality of jobs provided by entrepreneurial firms, we identify relevant empirical and quantitative studies published in economics or management journals. Our approach resembles that of previous literature review articles in the fields of entrepreneurship and innovation (e.g. Block et al., 2017; Van Praag and Versloot, 2007). Because of the ambiguous nature of what constitutes job quality, we used a large number of keywords (e.g. ‘job quality’, ‘compensation’, ‘job security’, ‘stress’, ‘job satisfaction’) when searching for studies. We used different spelling variants for each keyword and searched for each respective term in conjunction with entrepreneurial or young firms. We carried out research in a multitude of databases (e.g. ScienceDirect, EBSCOhost, Wiley, Google Scholar) and also carefully examined each relevant publication’s respective backward and forward citations to identify fitting studies. In contrast to previous reviews, we did not use any restrictions regarding the journal in which the study was published. Books and book chapters are not included in our literature review. However, despite the large number of studies dealing with the relationship between entrepreneurial firms and job quantity, we could identify relatively few studies that investigate the quality of jobs created by entrepreneurial firms. To stay within the focus of our research questions, we excluded those studies that focus on the job or position of the entrepreneur him- or herself (e.g. studies about the earnings and job satisfaction of the entrepreneur) and included only those studies about the quality of the jobs created by the entrepreneurs. We summarize the main findings of our literature review in the following section. Based on the topics dealt with in the studies we found, this summary is structured along the following five categories: (i) compensation: wages, (ii) compensation: bonuses and equity-based compensation, (iii) non-monetary benefits, (iv) job security, and (v) work content and job types. Each subsection contains a table showing details of the identified studies. (i) Compensation: wages A crucial aspect of job quality is the level of monetary compensation. Table 2 lists studies on wages in entrepreneurial firms. While entrepreneurial firms could be expected to pay a wage premium to offset the inherent insecurity that new firms entail, the notion that entrepreneurial firms pay less is also widespread (Shane, 2009). Table 2: Studies on compensation: wages Author(s) Content Data Definition of entrepreneurial/ young firms Adrjan (2018, WP) EFs pay a 1–2 per cent wage premium to new employees, but wages grow slower than in established firms. Also, EFs that survive and become highly productive pay higher wages than less successful EFs. Finally, wages at EFs have declined since the mid-2000s. Linked employer–employee data, Great Britain (2002–15) Firm age < 3, < 2,500 employees at time of establishment, independent. Brixy et al. (2007, SBE) Entrepreneurial firms pay lower wages than established firms. The wage differential declines as entrepreneurial firms become more mature. Linked employer–employee data, Germany (1997–2001) Firm age < 5, < 200 employees after 2 years, private ownership Brown and Medoff (2003, JLE) Wage differential between young and old firms vanishes or even changes direction when controlling for individual characteristics such as tenure, experience, and education. Linked employer–employee data, US (1991–2) Firm age as continuous variable Burton et al. (in press, ILR) Entrepreneurial firms pay more than older firms for observationally equivalent employees. However, the size effect dominates this effect, indicating that wages are rather driven by a company’s size than a company’s age. Thus, while the typical entrepreneurial firm pays less than established firms, high-growth entrepreneurial firms pay a wage premium. Comprehensive registry data on the population of Danish workers, Denmark (1991–2006) Firm age < 4 years, no size restriction, independent firms Dorner et al. (2017, RP) Academic spin-offs pay no general wage premium compared to non- academic spin-offs. However, academic spin-offs that commercialize new scientific results pay a wage premium to employees with links to the university sector. Linked employer–employee data Germany (1998–2005, data collected in 2007) Firm age < 4 years, independent firms Heyman (2007, Labour) Positive association between firm age and wages. However, the effect is not very robust and varies across years. Linked employer–employee data, Sweden (1987–95) Firm age < 6 years, at least 2 employees Kim (2018, RP) Employees at VC-backed entrepreneurial firms earn 10 per cent higher wages than employees at established firms. Wage differentials are insignificant when individual fixed effects are included. This implies that much of the entrepreneurial firm wage premium in the cross-section can be attributed to selection, and that VC-backed entrepreneurial firms pay competitive wages for talent. Survey of 2,064 MIT graduates joining start-ups as non-founders (2006–14) Firm age < 5 years, no size restriction Nyström and Elvung (2014, SBE) Wage penalty of 2.9 per cent for individuals that are new to the labour market when working in entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2008) Firm age <1–5 years, no size restriction Nyström and Elvung (2015, Labour) Share of job transitions into lower wages are more common when switching to entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2010) Firm age < 3, < 20 employees at time of establishment Schmieder (2013, WP) Starting wages in EFs are 10 per cent higher than in old establishments; this difference persists even after controlling for detailed controls, including establishment and worker fixed effects. This difference is driven by, on average, high growth rates in new establishments. Linked employer–employee data, Germany (1993–2005) Firm age < 10 years, no size restriction Author(s) Content Data Definition of entrepreneurial/ young firms Adrjan (2018, WP) EFs pay a 1–2 per cent wage premium to new employees, but wages grow slower than in established firms. Also, EFs that survive and become highly productive pay higher wages than less successful EFs. Finally, wages at EFs have declined since the mid-2000s. Linked employer–employee data, Great Britain (2002–15) Firm age < 3, < 2,500 employees at time of establishment, independent. Brixy et al. (2007, SBE) Entrepreneurial firms pay lower wages than established firms. The wage differential declines as entrepreneurial firms become more mature. Linked employer–employee data, Germany (1997–2001) Firm age < 5, < 200 employees after 2 years, private ownership Brown and Medoff (2003, JLE) Wage differential between young and old firms vanishes or even changes direction when controlling for individual characteristics such as tenure, experience, and education. Linked employer–employee data, US (1991–2) Firm age as continuous variable Burton et al. (in press, ILR) Entrepreneurial firms pay more than older firms for observationally equivalent employees. However, the size effect dominates this effect, indicating that wages are rather driven by a company’s size than a company’s age. Thus, while the typical entrepreneurial firm pays less than established firms, high-growth entrepreneurial firms pay a wage premium. Comprehensive registry data on the population of Danish workers, Denmark (1991–2006) Firm age < 4 years, no size restriction, independent firms Dorner et al. (2017, RP) Academic spin-offs pay no general wage premium compared to non- academic spin-offs. However, academic spin-offs that commercialize new scientific results pay a wage premium to employees with links to the university sector. Linked employer–employee data Germany (1998–2005, data collected in 2007) Firm age < 4 years, independent firms Heyman (2007, Labour) Positive association between firm age and wages. However, the effect is not very robust and varies across years. Linked employer–employee data, Sweden (1987–95) Firm age < 6 years, at least 2 employees Kim (2018, RP) Employees at VC-backed entrepreneurial firms earn 10 per cent higher wages than employees at established firms. Wage differentials are insignificant when individual fixed effects are included. This implies that much of the entrepreneurial firm wage premium in the cross-section can be attributed to selection, and that VC-backed entrepreneurial firms pay competitive wages for talent. Survey of 2,064 MIT graduates joining start-ups as non-founders (2006–14) Firm age < 5 years, no size restriction Nyström and Elvung (2014, SBE) Wage penalty of 2.9 per cent for individuals that are new to the labour market when working in entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2008) Firm age <1–5 years, no size restriction Nyström and Elvung (2015, Labour) Share of job transitions into lower wages are more common when switching to entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2010) Firm age < 3, < 20 employees at time of establishment Schmieder (2013, WP) Starting wages in EFs are 10 per cent higher than in old establishments; this difference persists even after controlling for detailed controls, including establishment and worker fixed effects. This difference is driven by, on average, high growth rates in new establishments. Linked employer–employee data, Germany (1993–2005) Firm age < 10 years, no size restriction Notes: EF = entrepreneurial firm, ILR = ILR Review, JLE = Journal of Labour Economics, RP = Research Policy, SBE = Small Business Economics, WP = working paper. View Large Table 2: Studies on compensation: wages Author(s) Content Data Definition of entrepreneurial/ young firms Adrjan (2018, WP) EFs pay a 1–2 per cent wage premium to new employees, but wages grow slower than in established firms. Also, EFs that survive and become highly productive pay higher wages than less successful EFs. Finally, wages at EFs have declined since the mid-2000s. Linked employer–employee data, Great Britain (2002–15) Firm age < 3, < 2,500 employees at time of establishment, independent. Brixy et al. (2007, SBE) Entrepreneurial firms pay lower wages than established firms. The wage differential declines as entrepreneurial firms become more mature. Linked employer–employee data, Germany (1997–2001) Firm age < 5, < 200 employees after 2 years, private ownership Brown and Medoff (2003, JLE) Wage differential between young and old firms vanishes or even changes direction when controlling for individual characteristics such as tenure, experience, and education. Linked employer–employee data, US (1991–2) Firm age as continuous variable Burton et al. (in press, ILR) Entrepreneurial firms pay more than older firms for observationally equivalent employees. However, the size effect dominates this effect, indicating that wages are rather driven by a company’s size than a company’s age. Thus, while the typical entrepreneurial firm pays less than established firms, high-growth entrepreneurial firms pay a wage premium. Comprehensive registry data on the population of Danish workers, Denmark (1991–2006) Firm age < 4 years, no size restriction, independent firms Dorner et al. (2017, RP) Academic spin-offs pay no general wage premium compared to non- academic spin-offs. However, academic spin-offs that commercialize new scientific results pay a wage premium to employees with links to the university sector. Linked employer–employee data Germany (1998–2005, data collected in 2007) Firm age < 4 years, independent firms Heyman (2007, Labour) Positive association between firm age and wages. However, the effect is not very robust and varies across years. Linked employer–employee data, Sweden (1987–95) Firm age < 6 years, at least 2 employees Kim (2018, RP) Employees at VC-backed entrepreneurial firms earn 10 per cent higher wages than employees at established firms. Wage differentials are insignificant when individual fixed effects are included. This implies that much of the entrepreneurial firm wage premium in the cross-section can be attributed to selection, and that VC-backed entrepreneurial firms pay competitive wages for talent. Survey of 2,064 MIT graduates joining start-ups as non-founders (2006–14) Firm age < 5 years, no size restriction Nyström and Elvung (2014, SBE) Wage penalty of 2.9 per cent for individuals that are new to the labour market when working in entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2008) Firm age <1–5 years, no size restriction Nyström and Elvung (2015, Labour) Share of job transitions into lower wages are more common when switching to entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2010) Firm age < 3, < 20 employees at time of establishment Schmieder (2013, WP) Starting wages in EFs are 10 per cent higher than in old establishments; this difference persists even after controlling for detailed controls, including establishment and worker fixed effects. This difference is driven by, on average, high growth rates in new establishments. Linked employer–employee data, Germany (1993–2005) Firm age < 10 years, no size restriction Author(s) Content Data Definition of entrepreneurial/ young firms Adrjan (2018, WP) EFs pay a 1–2 per cent wage premium to new employees, but wages grow slower than in established firms. Also, EFs that survive and become highly productive pay higher wages than less successful EFs. Finally, wages at EFs have declined since the mid-2000s. Linked employer–employee data, Great Britain (2002–15) Firm age < 3, < 2,500 employees at time of establishment, independent. Brixy et al. (2007, SBE) Entrepreneurial firms pay lower wages than established firms. The wage differential declines as entrepreneurial firms become more mature. Linked employer–employee data, Germany (1997–2001) Firm age < 5, < 200 employees after 2 years, private ownership Brown and Medoff (2003, JLE) Wage differential between young and old firms vanishes or even changes direction when controlling for individual characteristics such as tenure, experience, and education. Linked employer–employee data, US (1991–2) Firm age as continuous variable Burton et al. (in press, ILR) Entrepreneurial firms pay more than older firms for observationally equivalent employees. However, the size effect dominates this effect, indicating that wages are rather driven by a company’s size than a company’s age. Thus, while the typical entrepreneurial firm pays less than established firms, high-growth entrepreneurial firms pay a wage premium. Comprehensive registry data on the population of Danish workers, Denmark (1991–2006) Firm age < 4 years, no size restriction, independent firms Dorner et al. (2017, RP) Academic spin-offs pay no general wage premium compared to non- academic spin-offs. However, academic spin-offs that commercialize new scientific results pay a wage premium to employees with links to the university sector. Linked employer–employee data Germany (1998–2005, data collected in 2007) Firm age < 4 years, independent firms Heyman (2007, Labour) Positive association between firm age and wages. However, the effect is not very robust and varies across years. Linked employer–employee data, Sweden (1987–95) Firm age < 6 years, at least 2 employees Kim (2018, RP) Employees at VC-backed entrepreneurial firms earn 10 per cent higher wages than employees at established firms. Wage differentials are insignificant when individual fixed effects are included. This implies that much of the entrepreneurial firm wage premium in the cross-section can be attributed to selection, and that VC-backed entrepreneurial firms pay competitive wages for talent. Survey of 2,064 MIT graduates joining start-ups as non-founders (2006–14) Firm age < 5 years, no size restriction Nyström and Elvung (2014, SBE) Wage penalty of 2.9 per cent for individuals that are new to the labour market when working in entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2008) Firm age <1–5 years, no size restriction Nyström and Elvung (2015, Labour) Share of job transitions into lower wages are more common when switching to entrepreneurial firms instead of established firms. Linked employer–employee data, Sweden (1998–2010) Firm age < 3, < 20 employees at time of establishment Schmieder (2013, WP) Starting wages in EFs are 10 per cent higher than in old establishments; this difference persists even after controlling for detailed controls, including establishment and worker fixed effects. This difference is driven by, on average, high growth rates in new establishments. Linked employer–employee data, Germany (1993–2005) Firm age < 10 years, no size restriction Notes: EF = entrepreneurial firm, ILR = ILR Review, JLE = Journal of Labour Economics, RP = Research Policy, SBE = Small Business Economics, WP = working paper. View Large This latter notion is empirically supported by Brixy et al. (2007), who show that entrepreneurial firms tend to pay lower wages than established firms. Based on a longitudinal sample of German firms, they find that entrepreneurial firms pay 8 per cent less than established firms. Yet, this wage differential decreases as firms become more mature. Using Swedish employer–employee data from 1998 to 2008, Nyström and Elvung (2014) identify a wage penalty of 2.9 per cent for new entrants into the labour market when working for entrepreneurial versus established firms. Using a similar Swedish employer–employee dataset, but focusing on the wage differential when switching jobs, Nyström and Elvung (2015) also show that the likelihood of transitioning to a lower wage is higher when joining entrepreneurial firms versus established firms. Dorner et al. (2017) explore wage differentials within a group of entrepreneurial firms in terms of the types of employees. Their results show academic spin-offs generally do not pay a wage premium when compared to non-academic spin-offs. However, academic spin-offs that commercialize new scientific results or methods do pay wage premiums to employees with a university background (e.g. university graduates or student workers). While the above studies indicate that the average entrepreneurial firm seems to pay lower wages than the average established firm, we know little about explanatory factors. The reasons offered for the negative wage differential include lower ability to pay, lower productivity, different type of work force, and higher financial constraints for entrepreneurial firms versus established firms (Brown and Medoff, 2003; Brixy et al., 2007). As one of the first studies focusing on the link between firm age and wages, Brown and Medoff (2003) find that the wage differential vanishes or even changes direction when controlling for employee characteristics such as tenure, experience, and education. Similar results are obtained by Heyman (2007). Burton et al. (in press) reassess the wages paid by entrepreneurial firms by using comprehensive registry data on the population of Danish employees from 1991 to 2006. The dataset enables the authors to account for compositional issues (such as differing workforce compositions) across firms and industries in a robust way. The authors argue that the lack of controlling for these compositional differences has been a major drawback of previous studies. Interestingly, the authors find that younger firms pay higher wages than older firms when controlling for compositional differences. However, the authors also find that the size effect dominates the age effect, indicating that wages are driven by firm size rather than firm age. Similarly, Adrjan (2018) also identifies a wage premium paid by young firms using data from Great Britain (2002–15). Yet, the author also finds that wages grow more slowly in entrepreneurial versus established firms. Adrjan (2018) determines that this wage premium is mainly due to a small subset of highly productive entrepreneurial firms. Relatedly, Kim (2018) shows that non-founder employees at venture-capital-backed start-ups earn roughly 10 per cent higher wages than their counterparts at established firms. However, wage differentials become insignificant when individual fixed effects are included. Finally, Schmieder (2013) describes that starting wages in new establishments are 10 per cent higher than in old establishments, based on data from Germany. This difference persists even after controlling for various factors, including establishment and worker fixed effects. The author also finds that this difference is driven by the relatively high growth rates in new establishments. Thus, while the typical entrepreneurial firm (being both young and small) pays lower wages than a more established employer, those that grow rapidly seem to pay a wage premium. (ii) Compensation: bonuses and equity-based compensation Most studies on compensation in entrepreneurial firms focus on wages per se and do not distinguish between different wage components, such as fixed and variable parts, likely because this information is not available. In addition to bonus payments, equity-based compensation, such as stock or stock option payments, play an important role. Such compensation is particularly useful for high-growth entrepreneurial firms to attract and incentivize employees. Table 3 shows studies on compensation in entrepreneurial firms that deal with bonus payments and equity-based compensation. Table 3: Studies on compensation: bonuses and equity-based compensation Author(s) Content Data Definition of entrepreneurial firms Bengsston and Hand (2013, JEMS) Relative to founder-controlled firms, VC-controlled firms pay non-founder employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. 18,935 non-CEO compensation contracts across 1,809 US firms that received VC (2002–7) No age and size restrictions, private, independent firms Hand (2008, JBV) 27 per cent of US pre-IPO VC-backed firms do not grant stock options to all employees. EFs carefully weigh the economic and legal costs and benefits of stock options when deciding whether to grant them or not Survey on compensation in 852 US firms that received VC (2004–5) No age and size restrictions Messersmith et al. (2018, ISBJ) Analyses the effects of employee benefit offerings on venture survival odds. Offering health insurance, flexible work schedules, paid vacation, or paid sick leave increases the odds of survival. However, offering employee stock ownership plans or tuition reimbursement has no significant influence on the odds of survival. Kauffman Firm Survey, 1,012 US firms, founded in 2004 (2004–11) Firm age < 6 years, no size restriction, independent firms Author(s) Content Data Definition of entrepreneurial firms Bengsston and Hand (2013, JEMS) Relative to founder-controlled firms, VC-controlled firms pay non-founder employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. 18,935 non-CEO compensation contracts across 1,809 US firms that received VC (2002–7) No age and size restrictions, private, independent firms Hand (2008, JBV) 27 per cent of US pre-IPO VC-backed firms do not grant stock options to all employees. EFs carefully weigh the economic and legal costs and benefits of stock options when deciding whether to grant them or not Survey on compensation in 852 US firms that received VC (2004–5) No age and size restrictions Messersmith et al. (2018, ISBJ) Analyses the effects of employee benefit offerings on venture survival odds. Offering health insurance, flexible work schedules, paid vacation, or paid sick leave increases the odds of survival. However, offering employee stock ownership plans or tuition reimbursement has no significant influence on the odds of survival. Kauffman Firm Survey, 1,012 US firms, founded in 2004 (2004–11) Firm age < 6 years, no size restriction, independent firms Notes: EF = entrepreneurial firm, ISBJ = International Small Business Journal, JBV = Journal of Business Venturing, JEMS = Journal of Economics and Management Strategy. View Large Table 3: Studies on compensation: bonuses and equity-based compensation Author(s) Content Data Definition of entrepreneurial firms Bengsston and Hand (2013, JEMS) Relative to founder-controlled firms, VC-controlled firms pay non-founder employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. 18,935 non-CEO compensation contracts across 1,809 US firms that received VC (2002–7) No age and size restrictions, private, independent firms Hand (2008, JBV) 27 per cent of US pre-IPO VC-backed firms do not grant stock options to all employees. EFs carefully weigh the economic and legal costs and benefits of stock options when deciding whether to grant them or not Survey on compensation in 852 US firms that received VC (2004–5) No age and size restrictions Messersmith et al. (2018, ISBJ) Analyses the effects of employee benefit offerings on venture survival odds. Offering health insurance, flexible work schedules, paid vacation, or paid sick leave increases the odds of survival. However, offering employee stock ownership plans or tuition reimbursement has no significant influence on the odds of survival. Kauffman Firm Survey, 1,012 US firms, founded in 2004 (2004–11) Firm age < 6 years, no size restriction, independent firms Author(s) Content Data Definition of entrepreneurial firms Bengsston and Hand (2013, JEMS) Relative to founder-controlled firms, VC-controlled firms pay non-founder employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. 18,935 non-CEO compensation contracts across 1,809 US firms that received VC (2002–7) No age and size restrictions, private, independent firms Hand (2008, JBV) 27 per cent of US pre-IPO VC-backed firms do not grant stock options to all employees. EFs carefully weigh the economic and legal costs and benefits of stock options when deciding whether to grant them or not Survey on compensation in 852 US firms that received VC (2004–5) No age and size restrictions Messersmith et al. (2018, ISBJ) Analyses the effects of employee benefit offerings on venture survival odds. Offering health insurance, flexible work schedules, paid vacation, or paid sick leave increases the odds of survival. However, offering employee stock ownership plans or tuition reimbursement has no significant influence on the odds of survival. Kauffman Firm Survey, 1,012 US firms, founded in 2004 (2004–11) Firm age < 6 years, no size restriction, independent firms Notes: EF = entrepreneurial firm, ISBJ = International Small Business Journal, JBV = Journal of Business Venturing, JEMS = Journal of Economics and Management Strategy. View Large Bengtsson and Hand (2013) assess employee compensation in VC-backed entrepreneurial firms by comparing the number of compensation policies in founder- and VC-dominated firms. They find that compensation policies (e.g. formal bonus plans, option grant guides, existence of sales commissions) are less likely in firms with founder chief executive officers (CEOs) as compared to VC-controlled firms. Also, employees in VC-controlled firms receive higher levels of cash pay (i.e. salary plus bonus), greater equity incentives, and more often work under formal pay policies than those in founder-controlled firms. Finally, the authors find that early-hired employees have lower cash compensation than later-hired ones, but more equity incentives. Focusing on stock options in VC-backed entrepreneurial firms, Hand (2008) shows that 27 per cent of US pre-initial public offering (IPO) VC-backed firms do not grant stock options to all employees, even though this is regarded as an important tool for attracting talented employees. On the flipside, this means that 73 per cent of the sampled firms do offer employee stock options to all employees. Hand (2008) argues that entrepreneurial firms carefully weigh the economic and legal costs and benefits of stock options when deciding whether to grant them or not. Despite their prevalence in practice, it is surprising that we could identify only two studies about bonuses and equity-based compensation in entrepreneurial firms. (iii) Non-monetary benefits Next to wages, non-monetary benefits are another crucial aspect of job quality. Litwin and Phan (2013) analyse whether entrepreneurial firms offer their employees access to health insurance or retirement plans. Using a panel of 4,928 US businesses founded in the year 2004, the authors find that entrepreneurial firms rarely provide their employees with access to health insurance or retirement plans. They also find that this changes only slightly over the firms’ first 6 years of operation. Table 4 gives more details of the study by Litwin and Phan (2013). Table 4: Studies on non-monetary benefits Author(s) Content Data Definition of entrepreneurial firms Litwin and Phan (2013, ILR) EFs rarely provide their employees with health or retirement plans. Also, the likelihood of offering health or retirement plans increases only marginally over time. Kauffman Firm Survey, 4,928 US firms founded in 2004 Firm age < 6 years, no size restriction Author(s) Content Data Definition of entrepreneurial firms Litwin and Phan (2013, ILR) EFs rarely provide their employees with health or retirement plans. Also, the likelihood of offering health or retirement plans increases only marginally over time. Kauffman Firm Survey, 4,928 US firms founded in 2004 Firm age < 6 years, no size restriction Notes: EF = entrepreneurial firm, ILR = ILR Review. View Large Table 4: Studies on non-monetary benefits Author(s) Content Data Definition of entrepreneurial firms Litwin and Phan (2013, ILR) EFs rarely provide their employees with health or retirement plans. Also, the likelihood of offering health or retirement plans increases only marginally over time. Kauffman Firm Survey, 4,928 US firms founded in 2004 Firm age < 6 years, no size restriction Author(s) Content Data Definition of entrepreneurial firms Litwin and Phan (2013, ILR) EFs rarely provide their employees with health or retirement plans. Also, the likelihood of offering health or retirement plans increases only marginally over time. Kauffman Firm Survey, 4,928 US firms founded in 2004 Firm age < 6 years, no size restriction Notes: EF = entrepreneurial firm, ILR = ILR Review. View Large The study by Litwin and Phan (2013) is the only one that we were able to identify that investigates non-monetary benefits. This is surprising, as this aspect of job quality has received considerable attention in previous entrepreneurship research, where a large number of studies explore the non-monetary aspects of becoming an entrepreneur. However, there is a surprising dearth of studies about the non-monetary aspects of working as an employee in an entrepreneurial firm. (iv) Job security Another important aspect of job quality is the duration of the employment contract offered to employees (open-ended versus fixed-term). Table 5 provides an overview of studies about job security in entrepreneurial firms. In a descriptive analysis of a sample of Portuguese firms from 2002 to 2007, De Matos and Parent (2016) find that entrepreneurial firms are an important source of job creation (as outlined in section II), however, often using (insecure) fixed-term contracts. They also find that a large portion of job destruction is due to old and small firms that often use open-ended contracts. Taken together, this situation leads to an overall increase in the share of fixed-term employment, which the authors at least partially attribute to increased environmental uncertainty. Moreover, the authors find that the share of fixed-term contracts does not decline as firms mature, and that firms with a higher share of fixed-term contracts are more likely to exit the market. Table 5: Studies on job security Author(s) Content Data Definition of entrepreneurial firms Brixy and Murmann (2016, WP) Jobs in EFs are more negatively impacted during economic downturns compared to established firms. Also, EFs exhibit countercyclical hiring patterns and grow more strongly during worse economic conditions. Linked employer– employee data from 6,960 firms, Germany (2007–13) Firm age < 3 years, no size restriction De Matos and Parent (2016, LE) EFs often create jobs by using less security-providing fixed term contracts. Linked employer– employee data, Portugal (2002–7) Firms founded in a given year, no size restriction Schnabel et al. (2011, SBE) Job stability is higher among individuals in established firms than in EFs. Risk of becoming unemployed was lower for individuals in established firms. Linked employer– employee data, Germany (1995/1996) Firms founded in a given year, private firms Author(s) Content Data Definition of entrepreneurial firms Brixy and Murmann (2016, WP) Jobs in EFs are more negatively impacted during economic downturns compared to established firms. Also, EFs exhibit countercyclical hiring patterns and grow more strongly during worse economic conditions. Linked employer– employee data from 6,960 firms, Germany (2007–13) Firm age < 3 years, no size restriction De Matos and Parent (2016, LE) EFs often create jobs by using less security-providing fixed term contracts. Linked employer– employee data, Portugal (2002–7) Firms founded in a given year, no size restriction Schnabel et al. (2011, SBE) Job stability is higher among individuals in established firms than in EFs. Risk of becoming unemployed was lower for individuals in established firms. Linked employer– employee data, Germany (1995/1996) Firms founded in a given year, private firms Notes: EF = entrepreneurial firm, LE = Labour Economics, SBE = Small Business Economics, WP = working paper. View Large Table 5: Studies on job security Author(s) Content Data Definition of entrepreneurial firms Brixy and Murmann (2016, WP) Jobs in EFs are more negatively impacted during economic downturns compared to established firms. Also, EFs exhibit countercyclical hiring patterns and grow more strongly during worse economic conditions. Linked employer– employee data from 6,960 firms, Germany (2007–13) Firm age < 3 years, no size restriction De Matos and Parent (2016, LE) EFs often create jobs by using less security-providing fixed term contracts. Linked employer– employee data, Portugal (2002–7) Firms founded in a given year, no size restriction Schnabel et al. (2011, SBE) Job stability is higher among individuals in established firms than in EFs. Risk of becoming unemployed was lower for individuals in established firms. Linked employer– employee data, Germany (1995/1996) Firms founded in a given year, private firms Author(s) Content Data Definition of entrepreneurial firms Brixy and Murmann (2016, WP) Jobs in EFs are more negatively impacted during economic downturns compared to established firms. Also, EFs exhibit countercyclical hiring patterns and grow more strongly during worse economic conditions. Linked employer– employee data from 6,960 firms, Germany (2007–13) Firm age < 3 years, no size restriction De Matos and Parent (2016, LE) EFs often create jobs by using less security-providing fixed term contracts. Linked employer– employee data, Portugal (2002–7) Firms founded in a given year, no size restriction Schnabel et al. (2011, SBE) Job stability is higher among individuals in established firms than in EFs. Risk of becoming unemployed was lower for individuals in established firms. Linked employer– employee data, Germany (1995/1996) Firms founded in a given year, private firms Notes: EF = entrepreneurial firm, LE = Labour Economics, SBE = Small Business Economics, WP = working paper. View Large Schnabel et al. (2011) use German employer–employee data to show that employment stability is higher among individuals that joined established firms versus entrepreneurial firms. Additionally, the risk of becoming unemployed is lower for individuals employed by established versus entrepreneurial firms, indicating an overall higher level of job security offered by the former. Finally, Brixy and Murmann (2016) show that employment in entrepreneurial firms is more negatively impacted during economic downturns than employment in established firms. However, the authors also show that entrepreneurial firms exhibit countercyclical hiring patterns and tend to grow more strongly during difficult economic times. While established firms refrain from hiring new employees during economic downturns, entrepreneurial firms often hire qualified labour market entrants who cannot find employment in established firms due to the tough economic conditions. (v) Work content and job types What type of jobs, in terms of content and skill levels, are created by entrepreneurial firms? Table 6 shows studies dealing with this aspect of working in entrepreneurial firms. Kuhn et al. (2016) focus on the educational content of jobs created (and destroyed) by entrepreneurial firms. This is important because a positive number of jobs created may mask a severe reallocation from high-skilled to low-skilled jobs within a given firm or industry. Using Danish employer–employee data from 2002 to 2007, the authors provide initial, descriptive evidence that established firms are more important for generating high-skilled jobs, whereas entrepreneurial firms more often create low-skilled jobs. Similar results are obtained by Malchow-Moller et al. (2011), who analyse entrepreneurial firms’ contribution towards the development of wages. They find that established firms contribute significantly to wage growth, while entrepreneurial firms typically generate low-wage jobs and thus do not contribute to average wage growth. Table 6: Studies on work content and job types Author(s) Content Data Definition of entrepreneurial firms Kuhn et al. (2016, EER) Established firms are more important for the generation of high-skilled jobs, whereas EFs more often create low- skilled jobs. Also, there are differences across industries in the jobs created by EFs and established firms. Linked employer– employee data, Denmark (2002–7) Firm age < 5 years, no size restriction Malchow-Moller et al. (2011, SBE) Established firms significantly contribute to wage growth, while EFs typically generate low-wage jobs and thus do not contribute to the growth in average wages. Firm level, 17,812 new firms, Denmark (1994–2003) Firms established in a given year, no size restriction Author(s) Content Data Definition of entrepreneurial firms Kuhn et al. (2016, EER) Established firms are more important for the generation of high-skilled jobs, whereas EFs more often create low- skilled jobs. Also, there are differences across industries in the jobs created by EFs and established firms. Linked employer– employee data, Denmark (2002–7) Firm age < 5 years, no size restriction Malchow-Moller et al. (2011, SBE) Established firms significantly contribute to wage growth, while EFs typically generate low-wage jobs and thus do not contribute to the growth in average wages. Firm level, 17,812 new firms, Denmark (1994–2003) Firms established in a given year, no size restriction Notes: EF = entrepreneurial firm, EER = European Economics Review, SBE = Small Business Economics. View Large Table 6: Studies on work content and job types Author(s) Content Data Definition of entrepreneurial firms Kuhn et al. (2016, EER) Established firms are more important for the generation of high-skilled jobs, whereas EFs more often create low- skilled jobs. Also, there are differences across industries in the jobs created by EFs and established firms. Linked employer– employee data, Denmark (2002–7) Firm age < 5 years, no size restriction Malchow-Moller et al. (2011, SBE) Established firms significantly contribute to wage growth, while EFs typically generate low-wage jobs and thus do not contribute to the growth in average wages. Firm level, 17,812 new firms, Denmark (1994–2003) Firms established in a given year, no size restriction Author(s) Content Data Definition of entrepreneurial firms Kuhn et al. (2016, EER) Established firms are more important for the generation of high-skilled jobs, whereas EFs more often create low- skilled jobs. Also, there are differences across industries in the jobs created by EFs and established firms. Linked employer– employee data, Denmark (2002–7) Firm age < 5 years, no size restriction Malchow-Moller et al. (2011, SBE) Established firms significantly contribute to wage growth, while EFs typically generate low-wage jobs and thus do not contribute to the growth in average wages. Firm level, 17,812 new firms, Denmark (1994–2003) Firms established in a given year, no size restriction Notes: EF = entrepreneurial firm, EER = European Economics Review, SBE = Small Business Economics. View Large Kuhn et al. (2016) also identify differences across industries in the types of jobs created by entrepreneurial versus established firms. For example, entrepreneurial firms are more important for job creation within the construction and food service sectors than within manufacturing or education sectors, where established firms are more important. The literature about the quality of jobs created by entrepreneurial firms rarely accounts for selection effects, which is an important limitation and obvious critique of this literature. For example, it could be that entrepreneurial firms are seen as risky and so attract lower quality workers who then end up being paid less in wages and other benefits. The next section of our literature review addresses this topic in more detail. IV. Characteristics of employees working in entrepreneurial firms The results of the previous section seem to indicate that, by and large, entrepreneurial firms tend to create lower quality jobs. An obvious follow-up question is whether this lower job quality is merely a reflection of worker quality and matching. For example, individuals who are more marginalized and less employable in the labour market may seek employment in entrepreneurial firms, and thus entrepreneurial firms pay lower wages. While it is difficult to disentangle cause and effect, a number of studies assess the characteristics of employees working in entrepreneurial firms and aims to shed light on this issue. We summarize the main results of this literature stream in this section. Table 7 provides an overview of the identified studies. Table 7: Studies on employee characteristics Author(s) Content Data Definition of entrepreneurial firms Coad et al. (2017, SBE) Individuals without a college degree are more likely to be hired by new ventures. Also, individuals with a lower previous income or a longer time in unemployment are more likely to be hired by EFs than established firms. Linked employer– employee data, Denmark (2001–6) Firms established in a given year, solo self- employed, no employees Noack et al. (2017, IJEBR) Commitment of joiners is larger if perceptions of distributive justice are higher. However, when joiners report having a second (or primary) job, in addition to the new venture, the direct relationship is weakened. In contrast, higher levels of alternative employment options strengthen the relationship between justice and commitment. Individual level, survey of 117 joiners No age and size restrictions Ouimet and Zarutskie (2014, JFE) EFs employ a younger workforce than established firms. While EFs tend to pay lower wages overall, young employees earn higher wages in EFs than in established firms. Linked employer– employee data, US (1992–2004) Firm age < 5 years, no size restriction Roach and Sauermann (2015, MS) Although individuals with founder and joiner interests share similar preferences for entrepreneurial job attributes, such as autonomy and risk, their preferences for these attributes differ. An interest in being a joiner is associated with both preferences and context, and this relationship is most pronounced for individuals with preferences that predispose them toward entrepreneurship. Individual level, survey of 4,168 science and engineering PhD students at 39 US research universities in 2010 No age and size restrictions Roach and Sauerman (2017, WP) Individuals with entrepreneurial career preferences are significantly more likely to join an EF. However, the majority are eventually employed in established firms. Individual level, 1,504 science and engineering PhDs (2010–13) No age and size restrictions Sauermann (in press, SEJ) Employee motivations differ between EFs and established firms, but are less pronounced than commonly thought. Employees in EFs place less emphasis on salary and job security than employees in established firms, reflecting a crucial willingness to bear risk. Also, employees in EFs value responsibility and challenge more than employees in established firms. Individual level, 10,585 US R&D employees (2003) Firm age < 5 years, < 100 employees Author(s) Content Data Definition of entrepreneurial firms Coad et al. (2017, SBE) Individuals without a college degree are more likely to be hired by new ventures. Also, individuals with a lower previous income or a longer time in unemployment are more likely to be hired by EFs than established firms. Linked employer– employee data, Denmark (2001–6) Firms established in a given year, solo self- employed, no employees Noack et al. (2017, IJEBR) Commitment of joiners is larger if perceptions of distributive justice are higher. However, when joiners report having a second (or primary) job, in addition to the new venture, the direct relationship is weakened. In contrast, higher levels of alternative employment options strengthen the relationship between justice and commitment. Individual level, survey of 117 joiners No age and size restrictions Ouimet and Zarutskie (2014, JFE) EFs employ a younger workforce than established firms. While EFs tend to pay lower wages overall, young employees earn higher wages in EFs than in established firms. Linked employer– employee data, US (1992–2004) Firm age < 5 years, no size restriction Roach and Sauermann (2015, MS) Although individuals with founder and joiner interests share similar preferences for entrepreneurial job attributes, such as autonomy and risk, their preferences for these attributes differ. An interest in being a joiner is associated with both preferences and context, and this relationship is most pronounced for individuals with preferences that predispose them toward entrepreneurship. Individual level, survey of 4,168 science and engineering PhD students at 39 US research universities in 2010 No age and size restrictions Roach and Sauerman (2017, WP) Individuals with entrepreneurial career preferences are significantly more likely to join an EF. However, the majority are eventually employed in established firms. Individual level, 1,504 science and engineering PhDs (2010–13) No age and size restrictions Sauermann (in press, SEJ) Employee motivations differ between EFs and established firms, but are less pronounced than commonly thought. Employees in EFs place less emphasis on salary and job security than employees in established firms, reflecting a crucial willingness to bear risk. Also, employees in EFs value responsibility and challenge more than employees in established firms. Individual level, 10,585 US R&D employees (2003) Firm age < 5 years, < 100 employees Notes: EF = entrepreneurial firm, IJEBR = International Journal of Entrepreneurial Behavior and Research, JFE = Journal of Financial Economics, MS = Management Science, SBE = Small Business Economics, SEJ = Strategic Entrepreneurship Journal. View Large Table 7: Studies on employee characteristics Author(s) Content Data Definition of entrepreneurial firms Coad et al. (2017, SBE) Individuals without a college degree are more likely to be hired by new ventures. Also, individuals with a lower previous income or a longer time in unemployment are more likely to be hired by EFs than established firms. Linked employer– employee data, Denmark (2001–6) Firms established in a given year, solo self- employed, no employees Noack et al. (2017, IJEBR) Commitment of joiners is larger if perceptions of distributive justice are higher. However, when joiners report having a second (or primary) job, in addition to the new venture, the direct relationship is weakened. In contrast, higher levels of alternative employment options strengthen the relationship between justice and commitment. Individual level, survey of 117 joiners No age and size restrictions Ouimet and Zarutskie (2014, JFE) EFs employ a younger workforce than established firms. While EFs tend to pay lower wages overall, young employees earn higher wages in EFs than in established firms. Linked employer– employee data, US (1992–2004) Firm age < 5 years, no size restriction Roach and Sauermann (2015, MS) Although individuals with founder and joiner interests share similar preferences for entrepreneurial job attributes, such as autonomy and risk, their preferences for these attributes differ. An interest in being a joiner is associated with both preferences and context, and this relationship is most pronounced for individuals with preferences that predispose them toward entrepreneurship. Individual level, survey of 4,168 science and engineering PhD students at 39 US research universities in 2010 No age and size restrictions Roach and Sauerman (2017, WP) Individuals with entrepreneurial career preferences are significantly more likely to join an EF. However, the majority are eventually employed in established firms. Individual level, 1,504 science and engineering PhDs (2010–13) No age and size restrictions Sauermann (in press, SEJ) Employee motivations differ between EFs and established firms, but are less pronounced than commonly thought. Employees in EFs place less emphasis on salary and job security than employees in established firms, reflecting a crucial willingness to bear risk. Also, employees in EFs value responsibility and challenge more than employees in established firms. Individual level, 10,585 US R&D employees (2003) Firm age < 5 years, < 100 employees Author(s) Content Data Definition of entrepreneurial firms Coad et al. (2017, SBE) Individuals without a college degree are more likely to be hired by new ventures. Also, individuals with a lower previous income or a longer time in unemployment are more likely to be hired by EFs than established firms. Linked employer– employee data, Denmark (2001–6) Firms established in a given year, solo self- employed, no employees Noack et al. (2017, IJEBR) Commitment of joiners is larger if perceptions of distributive justice are higher. However, when joiners report having a second (or primary) job, in addition to the new venture, the direct relationship is weakened. In contrast, higher levels of alternative employment options strengthen the relationship between justice and commitment. Individual level, survey of 117 joiners No age and size restrictions Ouimet and Zarutskie (2014, JFE) EFs employ a younger workforce than established firms. While EFs tend to pay lower wages overall, young employees earn higher wages in EFs than in established firms. Linked employer– employee data, US (1992–2004) Firm age < 5 years, no size restriction Roach and Sauermann (2015, MS) Although individuals with founder and joiner interests share similar preferences for entrepreneurial job attributes, such as autonomy and risk, their preferences for these attributes differ. An interest in being a joiner is associated with both preferences and context, and this relationship is most pronounced for individuals with preferences that predispose them toward entrepreneurship. Individual level, survey of 4,168 science and engineering PhD students at 39 US research universities in 2010 No age and size restrictions Roach and Sauerman (2017, WP) Individuals with entrepreneurial career preferences are significantly more likely to join an EF. However, the majority are eventually employed in established firms. Individual level, 1,504 science and engineering PhDs (2010–13) No age and size restrictions Sauermann (in press, SEJ) Employee motivations differ between EFs and established firms, but are less pronounced than commonly thought. Employees in EFs place less emphasis on salary and job security than employees in established firms, reflecting a crucial willingness to bear risk. Also, employees in EFs value responsibility and challenge more than employees in established firms. Individual level, 10,585 US R&D employees (2003) Firm age < 5 years, < 100 employees Notes: EF = entrepreneurial firm, IJEBR = International Journal of Entrepreneurial Behavior and Research, JFE = Journal of Financial Economics, MS = Management Science, SBE = Small Business Economics, SEJ = Strategic Entrepreneurship Journal. View Large A large number of studies indicate that entrepreneurial firms attract different types of employees than established firms. Often, these employees are labelled as joiners (i.e. start-up employees attracted to entrepreneurship, but who do not want to be founders) (e.g. Roach and Sauermann, 2015). For example, Brown and Medoff (2003) assume that established firms tend to have a workforce that is older, more experienced, and longer tenured. Of course, this has important implications for the wages paid by entrepreneurial firms, the jobs created, and the benefits offered. Disentangling this selection effect has been a major issue in previous research (e.g. Brown and Medoff, 2003; Burton et al., in press). Several studies focus on the characteristics of the employees in entrepreneurial firms. For example, Ouimet and Zarutskie (2014) examine employees’ ages. Based on firm-level data from the US Census Bureau, they find that young firms employ a younger workforce compared to older, established firms. They attribute this finding to the higher demand for certain technical skills in entrepreneurial firms, which young employees are more likely to possess, as well as their higher risk tolerance. While they also report that entrepreneurial firms tend to pay lower wages than established firms, they find that this wage penalty disappears, and even turns around, when focusing on young employees only. The study by Coad et al. (2017) shows somewhat different results, which can be explained by differences in the samples used. They find that individuals without a college degree are more likely to work in entrepreneurial firms, using a longitudinal matched employer–employee register of all individuals and firms in Denmark. Additionally, individuals with a lower previous income or coming out of unemployment are more likely to be hired by entrepreneurial firms than established firms. This is in line with the finding that many jobs created by entrepreneurial firms are of lower skill and wage levels (e.g. Malchow-Moller et al., 2011; Kuhn et al., 2016), and that these firms attract individuals who are more marginalized in the labour market (see also Åstebro and Tåg, 2017). A final set of studies concerns the motivations of employees. It is often assumed that employees in entrepreneurial firms are highly intrinsically motivated, for example, because entrepreneurial firms are often seen as innovative and dynamic. Indeed, Ouimet and Zarutskie (2014) find that young employees are more likely to enter firms with greater innovation potential and that show high growth. Sauermann (in press) focuses on whether entrepreneurial firms are able to recruit employees with ‘fire in the belly’, which could lead to higher levels of productivity. In their comparison of 10,000 US R&D employees in entrepreneurial and established firms, they find that motivations differ, but are less pronounced than commonly thought. The author finds that employees in entrepreneurial firms place less emphasis on salary and job security than employees in established firms, reflecting a crucial willingness to bear risks. A similar tendency is noted by Kim (2018), who states that individual preferences for risk as well as challenging work strongly predict entry into VC-backed entrepreneurial firms. Likewise, employees in entrepreneurial firms value responsibility and challenges more than those in established firms. Furthermore, the author finds that employees in innovative firms have a higher patent output, signifying greater innovativeness, and that employee motives are important for the innovative performance of entrepreneurial firms. Roach and Sauermann (2017) draw on a sample of over 1,500 science and engineering doctorates who later joined entrepreneurial or established firms. The authors focus on how ex ante career preferences influence whether employees eventually join entrepreneurial or established firms. Specifically, the authors find that even though individuals with entrepreneurial career preferences are significantly more likely to join entrepreneurial firms, the majority of them are still employed by established firms. Recent research shows that entrepreneurially minded persons are particularly attracted to family firms, which are often described as more entrepreneurial than non-family firms (Block et al., in press). Interestingly, about one-third of employees in entrepreneurial firms did not have an ex ante entrepreneurial career preference; career preferences do not always match the outcome. Focusing on the differences between founders and joiners, Roach and Sauermann (2017) show that individuals with founder and joiner interests share similar preferences for entrepreneurial job attributes, such as autonomy and risk, and are less interested in monetary compensation. However, their preferences for these attributes differ in significantly meaningful ways. For example, founders exhibit strong preferences for commercialization and managerial activities, while joiners are characterized by more moderate preferences for commercialization and functional work activities. Finally, Noack et al. (2017) show that the commitment of joiners increases along with their perception of distributive justice and reduces when they have a second job. Block et al. (2015) investigate family employees, which are an important sub-group of employees working in entrepreneurial firms. They find that family employees have higher job satisfaction and lower wages relative to other employees. V. Conclusion, avenues for future research, and policy implications (i) Conclusion In this literature review, we collect evidence regarding the (i) quantity and (ii) quality of jobs provided by entrepreneurial firms and summarize current knowledge about the (iii) characteristics of entrepreneurial firms’ employees. This topic, particularly the distinction between the quantity and quality of jobs created by entrepreneurial firms, is of growing importance for policy-makers who want to create high-quality jobs that help improve the lives of employees and their families. Entrepreneurial firms that create highly productive jobs also spur regional economic development, which is another important policy objective. Our main findings are as follows. First, with regard to (i) job quantity, research has arrived at the consensus that entrepreneurial firms do have a long-lasting and positive effect on job creation. This effect seems to be due to a very small fraction of young, high-growth firms. Second, with regard to (ii) job quality, the findings are less clear cut: While some studies indicate a higher quality of jobs created by entrepreneurial firms, a multitude of studies indicate that these jobs are of lower quality. For example, some studies indicate that entrepreneurial firms pay less than established firms, while more recent studies (e.g. Burton et al., in press) show that entrepreneurial firms pay more for observationally equivalent employees. Specifically, the latter studies show that entrepreneurial firms typically pay less than more established employers, but entrepreneurial firms that grow rapidly pay a wage premium. Further studies on job quality indicate that entrepreneurial firms offer jobs with fewer non-monetary benefits, less job security, and lower skill-demands. In summary, there is evidence that the average entrepreneurial firm seems not to create high-quality jobs but that only a small sub-group of highly productive, high-growth firms creates jobs of high quality. Still, even though many jobs at entrepreneurial firms are of lower quality they seem to be an important springboard for formerly unemployed individuals. The group of entrepreneurial firms seems to be heterogeneous in this regard. Third, with regard to (iii) employee characteristics, a large number of studies indicate that entrepreneurial firms attract a different type of employee from established firms. For example, entrepreneurial firms tend to employ a younger and often less educated workforce. Additionally, studies indicate that employees in entrepreneurial firms place less emphasis on salary and job security than employees in established firms, and instead place a higher value on responsibility, innovation, and challenges. In a nutshell, the lower quality of jobs at entrepreneurial firms may not be related exclusively to the characteristics of the entrepreneurial firms themselves, but may also be a result of a matching process in which individuals of lower employability seek and find jobs at entrepreneurial firms. For such individuals, working in an entrepreneurial firm can be an important springboard into the labour market. (ii) Avenues for future research As noted above, the existing literature regarding the quality of jobs provided by entrepreneurial firms is severely underdeveloped, so that great caution is called for when drawing conclusions. This is a strong limitation, which, at the same time, opens up several avenues for further research. The first avenue concerns the heterogeneity of entrepreneurial firms. Entrepreneurship research has repeatedly shown that these firms are a highly heterogeneous group across many dimensions. In fact, it is only a small portion of entrepreneurial firms that actually create jobs on a meaningful scale (Haltiwanger et al., 2013). These often innovative, high-growth firms differ in many aspects from the majority of entrepreneurial firms: they stimulate productivity growth (Mason et al., 2009), show high levels of innovation (Coad, 2009) and internationalization (Mason and Brown, 2013), generate positive spill-over effects (Mason et al. 2009), and pay higher wages (Burton et al., in press). Further research on the quality of jobs provided by entrepreneurial firms could place greater focus on this highly important but relatively small sub-group of entrepreneurial firms. Relevant and important questions could include: how do the levels and composition of wages in these firms differ from those in other entrepreneurial and established firms? which types of employees join these firms compared to other (entrepreneurial) firms? Entrepreneurial firms are also highly heterogeneous with regard to their life cycle. Entrepreneurial firms which are still in the seed or start-up phase may offer very different types of jobs from those which have already moved into the growth and internationalization phase. When entrepreneurial firms move further along in the venture cycle, different competences are needed, and the job profiles are likely to change. While prior research has investigated how this transition influences founder turnover (e.g. Boeker and Karichalil, 2002), little is known about the employees’ profiles or the types of jobs that are offered to them. Another avenue for further research concerns the multidimensional nature of the concept of job quality. As noted above, job quality encompasses many dimensions, ranging from monetary compensation to non-monetary benefits, such as health insurance and job security. Most prior research compares the jobs offered by entrepreneurial firms with those offered by established firms using only one of these dimensions. Yet, prior research from labour economics about compensating wage differentials (Smith, 1979; Osterman, 2013) shows that individuals are willing to accept trade-offs when choosing a job. Further research about the quality of jobs offered by entrepreneurial firms could investigate these trade-offs and establish to what degree individuals are willing to accept lower wages and less job security in exchange for better career chances and a more flexible and intrinsically motivating job. Finally, many research opportunities exist at the intersection of entrepreneurial and established firms. For example, prior research, going back to the early works of Schumpeter (e.g. Schumpeter, 1934), has argued that entrepreneurial firms can replace established firms; hence, jobs created by entrepreneurial firms may lead to job destruction in established firms. With regard to job quality, the interesting and important question thus arises of whether such ‘creative destruction’ by entrepreneurial firms leads to a situation in which higher quality jobs at established firms are replaced by lower quality jobs at entrepreneurial firms. Another interesting question is how job quantity and quality changes when entrepreneurial firms are acquired by established firms. Entrepreneurial firms can also be a springboard for young employees. It may be the case that entrepreneurial firms hire workers who are young and provide them with the experience and training needed to secure higher paying jobs at established firms. (iii) Policy implications While policy-makers understand the importance of entrepreneurial firms for the creation of jobs (European Commission, 2017; US Census Bureau, 2017), they have so far paid little attention to the aspect of job quality and in particular on how to improve it. Our literature review informs policy-makers that the overall job quality provided by entrepreneurial firms is often lower than the job quality offered by established firms. Thus, increasing the job quality in entrepreneurial firms might be an important vehicle for policy-makers to promote entrepreneurial firms as a whole. For example, policy-makers might particularly focus on improving the job quality in entrepreneurial firms that show high growth rates and are responsible for a majority of the group’s job creation. Such policy measures might be more efficient at promoting welfare than those aimed at increasing job quality in all entrepreneurial (or even small) firms. Other crucial questions in this domain include the following. How should labour market legislation be designed and to what degree should it also be applied to small and young firms, which are often excluded from many labour laws such as those that address job protection and minimum wages? What is the role of trade unions, work councils, and collective bargaining in this regard? Approaching these questions and addressing the quality of jobs offered by entrepreneurial firms will become a crucial task for policy-makers worldwide. Our review shows that a large fraction of the jobs created by entrepreneurial firms is filled by formerly unemployed individuals. An important question is whether these individuals prefer to work in entrepreneurial firms because their probability of employment in established firms is lower. 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( 2007 ), ‘ What is the Value of Entrepreneurship? A Review of Recent Research ’, Small Business Economics , 29 ( 4 ), 351 – 82 . Google Scholar Crossref Search ADS Footnotes 1 Entrepreneurial firms are commonly defined as firms younger than 5 years. Tables 1–7 list the respective definitions used in the studies that are included in our literature review. 2 Gross job creation is positive; net job creation is zero. © The Author(s) 2018. Published by Oxford University Press. For permissions please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Quantity and quality of jobs by entrepreneurial firms
JO - Oxford Review of Economic Policy
DO - 10.1093/oxrep/gry016
DA - 2018-09-19
UR - https://www.deepdyve.com/lp/oxford-university-press/quantity-and-quality-of-jobs-by-entrepreneurial-firms-Kca2KcCihQ
SP - 565
VL - 34
IS - 4
DP - DeepDyve
ER -