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

32 Pages Posted: 3 Jun 2017

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: Spring 2017

Abstract

Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of start‐ups. 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 nonemployer to employer firm among start‐ups. Several interesting patterns emerge regarding the dynamics of nonemployer start‐ups hiring their first employee. Hiring rates among the universe of nonemployer start‐ups are very low, but increase when the population of nonemployers is focused on more growth‐oriented businesses such as incorporated and employer identification number businesses. If nonemployer start‐ups hire, the bulk of hiring occurs in the first few years of existence. After this point in time, relatively few nonemployer start‐ups hire an employee. Focusing on more growth‐ and employment‐oriented start‐ups in the KFS, we find that Asian‐owned and Hispanic‐owned start‐ups have higher rates of hiring their first employee than white‐owned start‐ups. Female‐owned start‐ups are roughly 10 percentage points less likely to hire their first employee by the first, second, and seventh years after start‐up. 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 nonemployers hire their first employee.

Suggested Citation

Fairlie, Robert W. and Miranda, Javier, Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee (Spring 2017). Journal of Economics & Management Strategy, Vol. 26, Issue 1, pp. 3-34, 2017, Available at SSRN: https://ssrn.com/abstract=2979700 or http://dx.doi.org/10.1111/jems.12176

Robert W. Fairlie (Contact Author)

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

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Javier Miranda

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

Washington, DC
United States

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