Labor mobility and entrepreneurship: Who do new firms employ?

Entrepreneurship is often claimed to be important for generating employment. However, the empirical evidence on the relationship between entrepreneurship is not always convincing. Most of the studies that analyse the relationship between new firm formation and employment growth perform their analysis on cross-country or regional data. At the micro-level, we still know little about the labour dynamics and re-allocation effects induced by new firm formation. Which role do new firms play regarding labour reallocation? This paper intends to explore the individual and firm characteristics for employees in new Swedish firms. Do new firm start-ups absorb outsiders in the labour market or do they recruit employees from already incumbent firms? The paper use unique matched firm-employees dataset that makes it possible to link new firm formation and information about the individuals employed in these new firms. The empirical results indicate that the individual and firm characteristics associated with employees differ between new and incumbent firms. In particular, the share of immigrants, recently graduated employees and people entering the labor market is slightly higher in new firms. Hence, new firms might play a more important role for outsiders in the labor market.