Entrepreneurship and Inequality
The social scientific evidence linking entrepreneurship, individuals’ lives, and economic inequality and prosperity remains limited at best. We know little about the jobs created by new firms and how the risk of firm failure affects the careers and life courses of individuals. Who are the beneficiaries of entrepreneurial activity? How are the careers and life courses of the individuals affected by entrepreneurship? This multi-paper project’s aim is to provide a rigorous set of analyses leading to a much deeper understanding of entrepreneurship and inequality focusing on these and other related questions.
- M. Diane Burton, Michael S. Dahl and Olav Sorenson (2018), Do Startups Pay Less?, Industrial and Labor Relations Review. DOI
- Olav Sorenson, Michael S. Dahl, Rodrigo Canales and M. Diane Burton, The Startup Employee Earnings Gap: The Long-term Income Consequences of Joining Small and Young Firms. Submitted.
Pay-for-Performance and Employee Mental Health: Large Sample Evidence Using Employee Prescription Drug Usage
with Lamar Pierce
This paper provides the first evidence linking pay-for-performance (P4P) adoption by employers to long-term and serious mental health problems in employees. Matching survey-based data on P4P adoption by 1,309 Danish firms with objective wage, demographic, and medical prescription data of their 318,717 full-time employees, we find a four to six percent increase in the usage of anti-depressant and anti-anxiety medication after firms adopt P4P. This change appears almost exclusively in those with lower wage changes and those older than fifty. We also find evidence that workers select in and out of P4P firms based on mental health considerations, which implies that mental health effects influence job retention and attrition. Finally, we show different responses from female and male employees to the mental health threat of performance-based pay. Women with latent or potential mental health concerns appear to leave firms after P4P adoption, while men show now such response. Although we cannot claim a causal relationship, collectively our results support prior theoretical arguments that performance-based pay may indeed increase stress. More importantly, our study shows that the mental health costs of performance-based pay can be severe, necessitating medical treatment and possibly job change for some individuals.
Resubmitted – PDF
with Mirjam van Praag and Peter Thompson
We study motivations for and outcomes of couples starting up a joint firm, using a sample of 1,069 Danish couples that established a joint enterprise between 2001 and 2010, while comparing them to a set of comparable firms and couples. The main motivation for joint entrepreneurship is to create a labor market position for (female) spouses with limited alternative opportunities. This decision has positive effects: the financial benefits for each of the spouses, and especially the female, are larger in co-entrepreneurial firms, both during the life of the business and post-dissolution. This also reduces income inequality in the household.