Is Working for a Start-up Worth It? Evidence from the Semiconductor Industry

This paper examines the long-term earnings implications of workers’ decisions to work for early-stage firms. Using quarterly data, 1990-2002, from the California Unemployment Insurance System covering workers in California’s semiconductor industry, I compare the career trajectories of charter employees (i.e. employees who leave established firms to join a start-up firm in the start-up’s first quarter of record) with a matched sample of comparable workers at each charter employee’s pre-start-up employer. Estimating a fixed-effects model using the matched sample, I find that joining an early-stage firm has higher expected value and higher variance than staying at an established firm or than changing jobs to a different established firm. Additionally, I demonstrate that firm death and initial public offerings both have very little effect on the earnings levels and trajectories of charter employees. Finally, I look at the coefficient of relative risk aversion at which workers are indifferent between working at a start-up and staying at their previous employer. I conclude that joining a start-up in California’s semiconductor industry is utility maximizing for all workers with a low to moderate level of risk aversion.