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Younger workers in America earn 3.1% more at firms that are five years old or younger than at well-established firms, new research has shown.
Despite average wages tending to be lower at younger companies, a research paper titled “Who Works for Startups? The Relation between Firm Age, Employee Age and Growth” found staff aged between 25-34 years old make up 27% of the workforce of young firms, but just 18% of those at well-established companies.
In addition to this, using more than 10 year’s worth of data from the US Census Bureau, researchers found 70% of employees in younger companies are under 45 years old, while in older organisations almost half are over 45.
Researchers Paige Ouimet, of the University of North Carolina and Rebecca Zarutskie, of the Federal Reserve Board, said there are multiple reasons employees might be more likely to match with young firms.
“Given younger employees will, on average, have had more recent education, they may possess more current technical skills. Building a workforce with such characteristics can be especially critical to young firms, especially those developing new products or establishing new methods of production,” the report stated.
“In addition, young employees may be a better fit for young firms due to the fact that younger employees are likely to be relatively more risk tolerant.”
This tolerance to risk could explain why more young workers are keen to work in startups, which can bear income and human capital risks.
They also said younger firms are likely to employ workers who have recently completed a job search by nature of being new.
“Young workers are likely to switch jobs early on in their careers as they acquire job and task specific skills and learn about their own skills and productivity. Thus, to the extent young workers make up a higher percentage of workers who recently completed job searches, they will be more likely to work at young firms, strictly as a function of the joint dynamics of young firms and young workers.”
When it comes to wages, if young firms tend to hire more young employees based on the current skills they possess, then they should receive greater compensation relative to younger employees elsewhere, as well as older colleagues, the paper theorised.
In exploring the relation between firm age, employee age and wages, they found the average wage per employee across all age groups is lower at firms aged 1-5 years, and the average employee in that firm earn 6.2% less than the average employee at a firm ages over 20 years old.
However, when just focusing on staff aged between 25-34 and ages 35-44, they earn 3.1% and 2% more, respectively, at younger organisations than similarly aged employees at firms over 20 years old.
“We see a very different pattern for employees aged 45 and older. Employees aged 45 to 54 are paid almost 10% less and employees aged 55 or older are paid nearly 24% less in firms aged 1 to 5 years relative to firms older than 20 years,” the report stated.
Go here for the full research paper.