Workers' Job Prospects and Young Firm Dynamics
January 2025
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,
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