Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee

62 Pages Posted: 22 Apr 2016

See all articles by Robert W. Fairlie

Robert W. Fairlie

University of California, Santa Cruz - Department of Economics

Javier Miranda

US Census Bureau — Economy-Wide Statistics Division

Multiple version iconThere are 6 versions of this paper

Date Written: March 2016

Abstract

Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.

Keywords: entrepreneurship, job creation, Kauffman Firm Survey, iLBD, startups, entrepreneurship training, small business

JEL Classification: L260

Suggested Citation

Fairlie, Robert W. and Miranda, Javier, Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee (March 2016). CESifo Working Paper Series No. 5836, Available at SSRN: https://ssrn.com/abstract=2768048

Robert W. Fairlie (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Department of Economics
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Santa Cruz, CA 95064
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HOME PAGE: http://econ.ucsc.edu/~fairlie/

Javier Miranda

US Census Bureau — Economy-Wide Statistics Division ( email )

Washington, DC
United States

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