Wage Gap Between Startups, Older Firms Increasing

A new report shows that startups may be hiring more, but are paying less.
Business Writers
December 04, 2012

Job creation and hiring rates at startups have outpaced that of more established companies since 2008—but the younger companies pay less (and less) than the older ones, according to a recent report by Ewing Marion Kauffman Foundation titled Job Creation, Worker Churning and Wages at Young Businesses

“The percentage of hiring based on job creation is much greater at startups than at more mature firms,” says the report, which uses data from the Census Bureau’s Quarterly Workforce Indicators. Specifically, 40 percent of hires at young companies over the past four years are for newly created jobs. The figure for older firms: Twenty-five percent to 33 percent.

The study also shows the wage gap between old and new firms increasing and notes that the gap itself is not surprising “since larger firms have larger capital bases on which to draw,” but that “all real earnings growth in the last decade has occurred at established firms.”

Before the 2001 recession, workers at startups earned about 85 percent as much as those at older firms. By 2011, they were earning just 70 percent.

The report also shows that the churn rate, aka the pace of employee turnover, has slowed down both in startups and older firms. This isn't necessarily a good thing, because churn is also a sign of job market health and the ability of workers to advance.

“A degeneration in churn rates may indicate that the U.S. economy is becoming less dynamic,” says Dane Stangler, director of research and policy at the Kauffman Foundation. “If workers have fewer opportunities to change companies and job roles, as this research indicates, it will be harder for them to advance their careers and grow their earnings.”

Churn rates tend to drop during recessions, when companies become cautious about hiring and employees want to hang on to the jobs they have.

According to the report, worker turnover rates dropped in both the 2001 and 2007 to 2009 recessions and both times failed to recover to the previous peak. Turnover rates at the youngest of startups did recover after the most recent recession, but dropped again after the first quarter of 2011.

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