Why Startups Are Paying Employees Less Than Ever

Sure, start-ups are creating jobs, but turns out those jobs are paying much less than their big business counterparts. And the gap is getting bigger.

It's no secret that start-ups can't hand out the fat pay checks big businesses can. But that pay gap has gotten wider over the last decade-- even as start-ups become serious job-creators.  

In 2001, workers at start-up companies made 85% of what big business employees earned, but in 2011, start-up workers made only 70% of what their big biz counterparts made, according to a new report from the Kauffman Foundation.

And while, yes, data shows that start-ups are creating more jobs than in years past, the types of jobs they offer is the primary driver of the pay gap.

"When job creation as a percentage of hires goes up, that's a good thing from a macro standpoint," Dane Stangler, the Kauffman Foundation’s director of research and policy, told Inc. "But it points back to the underlying issues of the job's quality."

He added that start-ups in industries like food and retail simply offer lower-paying positions than, say, a tech start-up would.

The study's findings came from quarterly workforce indicators at the U.S. Census Bureau, which gathers employee and employer information at the state and federal levels, then incorporates it with typical census information, according to Kauffman.

The study showed that companies under two years of age are more likely to create new jobs. Specifically, 40% of hires at young companies over the past four years were for newly created positions, while only 25% to 33% of hires at older firms were for new jobs.

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