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Workers' Job Prospects and Young Firm Dynamics

January 2025

Written by: Seula Kim

Working Paper Number:

CES-25-09

Abstract

This paper investigates how worker beliefs and job prospects impact the wages and growth of young firms, as well as the aggregate economy. Building a heterogeneous-firm directed search model where workers gradually learn about firm types, I find that learning generates endogenous wage differentials for young firms. High-performing young firms must pay higher wages than equally high-performing old firms, while low-performing young firms offer lower wages than equally low-performing old firms. Reduced uncertainty or labor market frictions lower the wage differentials, thereby enhancing young firm dynamics and aggregate productivity. The results are consistent with U.S. administrative employee-employer matched data.

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:
endogeneity, payroll, younger firms, job, employment growth, hiring, wage regressions, wages employment, hire, wage growth, firms employment, firms age, layoff, prospect, employment unemployment, firms young

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Standard Industrial Classification, Bureau of Labor Statistics, Center for Economic Studies, Federal Reserve Bank, Longitudinal Business Database, Department of Economics, Employer Identification Numbers, Generalized Method of Moments, Unemployment Insurance, Department of Homeland Security, North American Industry Classification System, Longitudinal Employer Household Dynamics, AKM, IZA, Census Bureau Disclosure Review Board, Business Dynamics Statistics, Federal Statistical Research Data Center

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