Workers asked for a larger pay premium to join a risky young company when a Danish survey experiment made the prospect of unemployment last longer. The findings connect start-up recruitment costs with workers’ chances of finding another job.
Doubling the hypothetical time spent unemployed raised the required premium by about 2.3 percentage points in the researchers’ baseline estimate. The experiment measured stated choices, not wages paid under actual employment contracts.
Renato Faccini, Seho Kim and Javier Miranda present the research in an October discussion paper from the Halle Institute for Economic Research. Danmarks Nationalbank published the work on 9 October.
The paper is preliminary research. Its conclusions belong to the authors and are not an official policy position of either institution.
Workers put a price on employment risk
A compensating wage premium is the extra pay someone requires to accept a less attractive feature of a job. In this research, the feature is a higher risk that the employer will close.
Respondents compared a stable firm with an annual closure probability of about 4% and an experimental young firm with a probability of about 20%. Those were characteristics assigned to the hypothetical jobs, not estimates that every established company or start-up has those failure rates.
The researchers varied expected unemployment duration by randomly assigning scenarios that halved or doubled it. Respondents then indicated the pay change that would make them accept the riskier job.
The module ran from January to April 2026 and reached 2,556 eligible respondents. It was directed at employed people who reported having permanent contracts.
Someone expecting to find another job quickly may require less compensation for an employer’s failure risk. Someone expecting a lengthy loss of income faces a different calculation, even when the two job offers are otherwise unchanged.
The wider labour market affects recruitment
The authors also analysed Danish employer-employee records covering 2008 to 2022. They found that higher local job-finding rates were associated with a smaller wage difference between young and mature firms.
That part of the study is observational. Local economic conditions may affect both recruitment and pay, and a firm’s age is an imperfect indicator of whether it is conducting risky commercial experiments.
The survey gives a more direct test of the worker-side mechanism because unemployment duration was varied randomly. Its limitation is that choosing between described jobs is different from changing employers in practice.
For an employer, the results point to a recruitment issue that a salary benchmark may miss. A prospective employee assesses the consequences of a job ending, not just the annual pay while it lasts.
Our earlier reporting on employee retention and working conditions examines why pay alone does not describe an employment offer. Here, access to another job is part of the calculation.
Growth estimates come from a model
The researchers build an economic model in which easier re-employment reduces the wage premium risky entrants need to offer. Lower relative labour costs make more ambitious business experiments financially attractive.
That is a modelled mechanism, not evidence that cutting wages or introducing a particular unemployment policy will automatically increase productivity. The paper does not test a single recruitment programme that companies can copy.
Young employers still need to explain their business, funding and employment terms accurately. The research indicates why the surrounding labour market can influence the price workers put on joining them, including risks the employer cannot remove through a better job description.
