There is still a lot we do not know about the quality of jobs that entrepreneurial firms are creating. Part of this is because entrepreneurial firms themselves are so diverse, as well as the fact that definitions of job quality can vary. A study by Block, Fisch, and van Praag reviews existing research on entrepreneurial job quality and reveals several key points.
- There is a general consensus that entrepreneurial firms have a long-lasting and positive effect on job creation, driven mainly by a small fraction of young, fast-growing firms.
This was a recurring theme in all the research covered in this study, including an analysis of firms across 19 developed markets reviewed here. Endeavor Insight’s research also demonstrates that this is true for many emerging markets.
- The average small entrepreneurial firm pays less than older established firms, but this difference decreases and sometimes changes direction as the entrepreneurial firm grows.
Results here were somewhat mixed—some studies found that entrepreneurial firms pay less than older established firms, while others found that this difference disappeared when controlling for the typically lower experience and education levels of employees at the former. Overall, most studies found that younger entrepreneurial firms paid less than established firms, but that this effect decreased with the company’s size and that many fast-growing entrepreneurial companies even pay a wage premium.
- There is very little existing research on which firms are more likely to offer employee stock options and other non-monetary benefits.
The few studies that do exist found that VC-backed entrepreneurial companies were more likely to offer stock benefits (and higher pay) than their founder-owned counterparts. Overall, entrepreneurial firms very rarely offered other non-monetary benefits.
- Entrepreneurial firms tend to offer jobs with higher risk, but are more likely than established firms to grow and hire during difficult economic times.
On average, entrepreneurial firms are more likely to offer shorter contracts that are fixed-term rather than open-ended. Another study showed that entrepreneurial firms are more likely to grow during difficult economic times, meaning that they hire new employees when other firms do not.
- Entrepreneurial firms attract a different type of employee than established firms.
One study found that people without a college degree or with lower previous income, or who were previously unemployed, are more likely to be hired by new ventures. This suggests that entrepreneurial firms can be a useful entry point into the job market for unemployed people in some disadvantaged groups. Employees at entrepreneurial companies are also more likely to value responsibility and challenges than employees at older, more established firms.
- High-growth firms are key for decision-makers focusing on job quality.
Overall, there is still not enough research to give clear-cut results on job quality at entrepreneurial firms at different stages, industries and markets. Still, existing research suggests that it is mostly a small fraction of high-growth entrepreneurial firms that are creating higher quality jobs than established firms. Since these are also the companies that create the most jobs in a given entrepreneurial community, the authors suggest that policymakers target this small fraction of firms when addressing job quality rather than focusing on all entrepreneurial firms.
The full article can be accessed here.
Contributed by Maha AbdelAzim.