Don’t Quit Your Day Job: Using Wage and Salary Earnings to Support a New Business

43 Pages Posted: 12 Sep 2013

See all articles by Monica Garcia-Perez

Monica Garcia-Perez

St. Cloud State University

Christopher Goetz

Government of the United States of America - Bureau of the Census

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Kristin Sandusky

Government of the United States of America - Bureau of the Census

Date Written: September 1, 2013

Abstract

This paper makes use of a newly constructed Census Bureau dataset that follows the universe of sole proprietors, employers and non-employers, over 10 years and links their transitions to their activity as employees earning wage and salary income. By combining administrative data on sole proprietors and their businesses with quarterly administrative data on wage and salary jobs held by the same individuals both preceding and concurrent with business startup, we create the unique opportunity to quantify significant workforce dynamics that have up to now remained unobserved. The data allow us to take a first glimpse at these business owners as they initiate business ventures and make the transition from wage and salary work to business ownership and back. We find that the barrier between wage and salary work and self-employment is extremely fluid, with large flows occurring in both directions. We also observe that a large fraction of business owners takeon both roles simultaneously and find that this labor market diversification does have implications for the success of the businesses these owners create. The results for employer transitions to exit and non-employer suggest that there is a "don’t quit your day job" effect that is present for new businesses. Employers are more likely to stay employers if they have a wage and salary job in the year just prior to the transitions that we are tracking. It is especially important to have a stable wage and salary job but there is also evidence that higher earnings from the wage and salary job makes transition less likely. For nonemployers we find roughly similar patterns but there are some key differences. We find that having recent wage and salary income (and having higher earnings from such wage and salary activity) increases the likelihood of survival. Having recent stable wage and salary income decreases the likelihood of a complete exit but increases the likelihood of transiting to be an employer. Having recent wage and salary income in the same industry as the non-employer business has a large and positive impact on the likelihood of transiting to being a non-employer business.

Keywords: firm survival, self-employment, startups, firm dynamics

Suggested Citation

Garcia-Perez, Monica and Goetz, Christopher and Haltiwanger, John C. and Sandusky, Kristin, Don’t Quit Your Day Job: Using Wage and Salary Earnings to Support a New Business (September 1, 2013). US Census Bureau Center for Economic Studies Paper No. CES-WP-13-45. Available at SSRN: https://ssrn.com/abstract=2324362 or http://dx.doi.org/10.2139/ssrn.2324362

Monica Garcia-Perez (Contact Author)

St. Cloud State University ( email )

Saint Cloud, MN 56301
United States

Christopher Goetz

Government of the United States of America - Bureau of the Census ( email )

4600 Silver Hill Road
Washington, DC 20233-9100
United States

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Kristin Sandusky

Government of the United States of America - Bureau of the Census

4600 Silver Hill Road
Washington, DC 20233-9100
United States

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