ECONOMICS SEMINAR SERIES (ESS) - 2025/2026

Speaker: Rui Baptista (University of Lisbon)

Title: Founder Networks and the Startup Wage Premium

Abstract: 

The compensation structure of startups remains a subject of considerable debate. This study moves beyond the unresolved debate over the startup wage premium (or penalty) by proposing a new, relational micro-foundation for wage setting in new ventures. We first investigate whether a shared prior employment history between a startup’s founder and an employee generates a discernible wage premium. We document evidence for such a premium and argue that this premium arises from relational contracting, where trust and private information create economic value. 

Using comprehensive matched employer-employee data from Sweden and Portugal, we find compelling evidence of a founder’s network wage premium. Employees who share a prior employment history with a startup’s founder earn a statistically and economically significant wage premium of approximately 4% in Sweden and 2% in Portugal, even after controlling for extensive worker and firm fixed effects. This premium is largest when asymmetric information and uncertainty are highest—in a startup’s earliest years and for critical, high-skill managerial and technical roles. Furthermore, it increases with the strength of the prior tie, consistent with a mechanism based on trust and superior information.

To test the durability of this relational rent, we then exploit the pivotal event of founder-CEO succession. This transition provides a natural experiment to analyze how the wage premium changes once the founder’s direct influence and idiosyncratic knowledge are removed. Using data for both Swedish and Portuguese startups we provide evidence that the relational wage premium is not a permanent feature but is, in fact, contingent on the founder’s continued presence. The premium erodes following the founder’s replacement by a professional, external CEO. This “smoking gun” evidence suggests that the premium is a payment for an asset—the founder’s private information and trust—that is embodied in the founder and is not fully transferable to the organization as it professionalizes.