Essays on Entrepreneurship and Labor Markets

Abstract

The first two chapters of this dissertation are based on a novel survey-experiment I conducted with 540 founders and executives of growth-capable U.S. startups. Study participants described hiring and compensation-setting at their own firms (which are on average 4 years old with 17 employees and $7 million of total funding raised) before giving their best advice about wages appropriate to four fictitious job descriptions. Participants were randomly assigned to one of two versions of the directions for this exercise, one that solicited an appropriate wage for the fictitious firm to pay, or one that asked for a “fair” wage for the employee to receive. Chapter one explores how these founders search for employees and set compensation. Startups rely on networks and referrals to search for employees, and free data resources to set compensation, but important differences in hiring strategies emerged by founder gender, entrepreneurial experience, and VC-funding status. Non-male respondents are more likely than male respondents to reference hiring via networks, but not more likely to rate networks as “very helpful.” There are few differences between self-reported serial entrepreneurs and first-time founders in their search strategies. Non-male and first-time entrepreneurs’ wage advice did not differ from the advice of males or serial entrepreneurs, but they were more likely to revise their advice when given additional data. Finally, VC-backed startups are 60% more likely to report using recruiters, and more likely to report using paid compensation data sources. These results inform theories of entrepreneurial labor markets, highlight that founder-level differences can matter for hiring, and suggest that VC involvement may currently add value to portfolio firms by engaging hiring intermediaries. Chapter two finds that, on average, wage advice did not differ between the fairness and the cost treatment arms. However, asking non-male entrepreneurs to recommend a “fair” wage produced recommendations that were $11,000 higher, on average. This effect shrinks, but is not totally eroded by the provision of a wage benchmark. Chapter Three (joint work with Margaret G. Dalton, Sari Pekkala Kerr, and William R. Kerr) deals with a different set of entrepreneurs: those who self-identify as self-employed. We document that, over the past half-century, while self-employment has consistently accounted for around one in ten of the United States workforce, its composition has changed. Since 1970, industries with high startup capital requirements have declined from 53% of self-employment to 23%. This same time period also witnessed declines in ”hometown” local entrepreneurship and the probability of the self-employed being among top earners. Using 2016 data, we show that high startup capital requirements are linked with lower profitability at small scales. The transition away from high startup capital industries appears most closely linked to changes in small business production functions and less due to advantageous reallocation to other opportunities, growth in returns-to-scale among large businesses, or a worsening of financing conditions and debt levels.