Early employees of venture-backed startups : selection and wage differentials

While much attention has been paid to company founders, very little is known regarding the first set of non-founder employees who join high-growth startups ("early employees"). This paper explores the wage differential between venture capital-backed startups and established firms given that the two firm types compete for talent. Using data on graduating college students from MIT, I find that VC-backed startups on average pay 8%-13% higher wages than their more established counterparts. I explore two channels for the cross-sectionally observed startup wage premium: compensating differentials and selection. The startup wage premium is robust after identifying and controlling for worker preferences for the three firm attributes (firm reputation, impactful work, and job security) that most strongly predict MIT graduates' entry into startups vs. established firms. To account for unobserved heterogeneity across workers, I exploit the fact that many MIT graduates receive multiple job offers and find that wage differentials are statistically insignificant from zero when individual fixed effects are employed. This implies that much of the startup wage premium can be attributed to selection rather than between-firm compensating differentials, and that VC-backed startups pay competitive wages for talent.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2016

Author dc:creator

• Kim, J. Daniel (Jisoo Daniel)

Advisor dc:contributor.advisor

• Pierre Azoulay.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/103206

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/103206