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Safety in Unemployment and Risky Experimentation of Young Firms
Renato Faccini, Seho Kim, Javier Miranda
IWH Discussion Papers,
No. 15,
2026
Abstract
We develop a theory in which a lower cost of job loss reduces the compensating wage premium workers require to join risky young firms. Lower labor costs encourage high-upside experimentation and raise productivity. Because experimentation is not directly observable, we exploit its life-cycle structure: experimentation risk is concentrated among young firms and resolved as firms mature. Using Danish matched employer-employee data and labor-market variation, we show that higher job-finding rates are associated with a lower young-mature wage differential. A randomized survey experiment supports the mechanism: worsening unemployment prospects increases the premium workers require to accept employment at higher-failure-risk young firms.
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