Does working at a start-up pay off?

Using representative linked employer-employee data for Germany, this paper analyzes short- and long-run differences in labor market performance of workers joining start-ups instead of incumbent firms. Applying entropy balancing and following individuals over ten years, we find huge and long-lasting drawbacks from entering a start-up in terms of wages, yearly income, and (un)employment. These disadvantages hold for all groups of workers and types of start-ups analyzed. Although our analysis of different subsequent career paths highlights important heterogeneities, it does not reveal any strategy through which workers joining start-ups can catch up with the income of similar workers entering incumbent firms. Plain English Summary: Workers do not benefit from entering start-ups. This study analyzes a huge data set for Germany and compares similar workers who either join newly founded firms, so-called start-ups, or incumbent firms. It follows both groups of workers over ten years and finds substantial short- and long-run differences in their labor market performance. Entering a start-up instead of an incumbent firm is associated with huge drawbacks in terms of workers' wages, yearly income, and employment. These disadvantages exist for various types of workers analyzed and for different types of start-ups. There is no strategy through which workers who join start-ups can catch up with the income of comparable workers who enter mature firms. Thus, the practical implication of this study is that for most workers, it is advisable not to enter start-ups if they have a chance to obtain a decent job in a mature firm. [ABSTRACT FROM AUTHOR]