Creative Destruction? Local Business Conditions and the Earnings of Employees at Startups.

Abstract

What drives job quality in startups? In this paper, I examine how fluctuations in local business conditions affect wages in startups and incumbent firms in the retail sector. I identify shocks to local business conditions using plausibly exogenous variation of hurricane strikes in U.S. coastal counties. I find that, on average, wages of startup employees increase in response to negative shocks to local business conditions. This effect does not appear to be driven by changes in supply or demand for labor. These findings are consistent with a “cleansing” effect of downturns, fostering the creation and retainment of more productive jobs, and driving out unproductive ones