Research

Startups are widely recognized for their contributions to economic growth and innovation, but their role as engines of economic inclusion has received far less attention. Using administrative data on U.S. workers, firms, and the criminal justice system, we show that startups disproportionately employ those who are often excluded from traditional labor markets, namely workers with criminal records. These patterns hold both cross-sectionally and within-workers' employment trajectories before and after convictions. We argue that startups' relative inclusivity reflects restricted access to established employers, rather than a deliberate preference among workers with records to work for startups. Consistent with this mechanism, disproportionate startup employment is stronger when workers with records face greater exclusion from established employers. We evaluate the outcomes of startup employment, finding that while startups offer better economic prospects than unemployment, the greater instability of young firms may contribute to higher recidivism risk relative to employment at established firms. Our findings underscore startups' potential to mitigate labor market inequality while calling for policies that enhance the quality and stability of these opportunities.

Non-bank lending to small- and medium-sized firms - i.e., private credit - has exploded over the past two decades. To explore the rise in its popularity, we focus on Business Development Companies (BDCs), which comprise a large fraction of the total private debt market and for which we can observe detailed information on portfolio investments. Although many have noted that BDC investments substitute for bank financing in the wake of post-crisis credit tightening, BDCs operate in meaningfully different ways from traditional lenders. BDCs do not merely make alternative bank loans: they offer a complex combination of securities to companies, spanning the debt/equity spectrum. This allows private lenders to tailor contracts to the risk profiles of individual firms. The growth of the asset class is tied directly to this contractual complexity, which is associated with higher interest rates and values at the loan level, yet lower market risk than traditional private equity. By blending lending with traditional private equity investments, the supply of capital is tailored to a growing retail investor segment.

Combining confidential Census worker and firm data, we find three key results. First, employees at more productive firms earn higher pay at all earnings levels. Second, this pay-productivity relationship strengthens with seniority, doubling from an elasticity of 0.07 for pay on productivity for the median-paid employee to 0.15 for the top-paid employee. Consequently, more productive firms have higher within-firm inequality. Our data suggests this is driven by their greater adoption of aggressive performance-pay bonus and management schemes. Finally, the magnitude of this pay-performance slope suggests rising productivity can explain 40% of the rise in within-firm inequality since 1980.

NBER working paper #29377
CES working paper
VoxEU
Harvard Law School Forum on Corporate Governance
Harvard Business Review

How costly are taxes for young firms? In this paper, we demonstrate that even small payroll taxes significantly distort hiring decisions and employment growth. First, we leverage cross-sectional variation in the taxes faced by new employers to study how these taxes affect entrepreneurs' decisions to become employers. We find that higher taxes discourage new firms from hiring their first workers; we estimate an elasticity of the number of new employers to taxes of –0.1. Second, we study tax changes a new employer faces after it enters. We find that higher taxes lead more firms to exit, while also reducing employment for those who survive and leading some firms to avoid taxes by using non-taxable contract labor.

How do workplace social connections shape everyday entrepreneurship? Using comprehensive data on millions of American workers across the economy, I find three key patterns. First, entrepreneurial coworkers inspire and teach entrepreneurship: individuals are more likely to become entrepreneurs after working with coworkers who previously led young businesses. Second, these effects predominantly occur within demographic groups, perpetuating lower entrepreneurship rates for women and Black Americans. Third, these workplace spillovers can increase productivity: individuals exposed to relatively successful coworkers subsequently run successful companies too.

Online appendix

Jordi Blanes i Vidal's The Visible Hand podcast
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Over the last several decades, rising pay dispersion between firms accounts for the majority of the dramatic increase in earnings inequality in the United States. This paper shows that a distinct cross-cohort pattern drives this rise: newer cohorts of firms enter more dispersed and stay more dispersed throughout their lives. A similar cohort pattern drives a variety of other closely related facts: increases in worker sorting across firms on the basis of pay, education, and age, and increasing productivity dispersion across firms. We discuss two important implications. First, these cohort patterns suggest a link between changes in firm entry associated with the decline in business dynamism and the rise in earnings inequality. Second, cohort effects imply a slow diffusion of inequality: we expect inequality to continue to rise as older and more equal cohorts of firms are replaced by younger and more unequal cohorts. Back of the envelope calculations suggest that this momentum could be substantial with increases in between-firm inequality in the next two decades almost as large as in last two.

Bureau of Labor Statics' Beyond BLS Series

Despite the prevalence of temporary financial assistance programs for those facing imminent homelessness, there is little evidence of their impact. Using data from Chicago from 2010 to 2012 (n = 4448), we demonstrate that the volatile nature of funding availability leads to good-as-random variation in the allocation of resources to individuals seeking assistance. To estimate impacts, we compare families that call when funds are available with those who call when they are not. We find that those calling when funding is available are 76% less likely to enter a homeless shelter. The per-person cost of averting homelessness through financial assistance is estimated as $10,300 and would be much less with better targeting of benefits to lower-income callers. The estimated benefits, not including many health benefits, exceed $20,000.

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Data and Programs
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Immigrant entrepreneurs play a vital role in the US startup landscape, yet how they affect the financing of US-based startups is not well understood. Using rich data on equity financing deals in the US, we identify three key findings. First, immigrant entrepreneurs are disproportionately financed in their early stages by investors based outside the US. Consistent with homophily, this pattern is mainly driven by immigrant entrepreneurs receiving equity financing from investors in their home countries and holds when leveraging within-founder variation in having immigrant co-founders. Second, these homophilic investments are not justified by better performance. Immigrant-founded startups financed by international investors are less likely to successfully exit than their native counterparts. Finally, through this homophily, immigrant-founded startups attract international capital to native entrepreneurs based in the same city, leading to regional financing spillovers. To mitigate potential confounding factors such as local economic trends, we employ a shift-share instrument. Taken together, these findings suggest that immigrant entrepreneurs contribute to the US startup ecosystem by serving as magnets for foreign investors.