Entrepreneurial Wage Dynamics in the Knowledge Economy

This research provides compelling empirical evidence suggesting that the relationship between firm age and employee compensation is very different in an evolutionary context than in a static analysis. While this study confirms that new and small enterprises compensate employees at lower levels than do their larger counterparts subsequent to startup, over time, the levels of employee compensation not only increase, but also at a higher rate than in larger enterprises. While the traditional static analysis leads to the policy prescription that new firms and the low wages associated with them represent a drag on economic welfare, the evolutionary view suggests that, in the knowledge economy, they are an essential component of the search for steep trajectories, both in terms of growth and wages.