Fed Board, Report: Early Joiners and Startup Performance

“Using employee-employer matched data with administrative tax information on all new employer startups in the U.S., we demonstrate that early joiners are critical drivers of startup performance. Unlike other rank-and-file employees who may be readily replaceable (e.g. second year joiners), early joiners tend to leave a lasting legacy on the performance of their nascent employers. We find that the impact of early joiners differs from that of founders. Early joiners are relatively more important on the intensive margin and as the firm ages. We hypothesize that the impact of early joiners stems from their contribution to the organization capital that emerges at firm formation and becomes embodied in the early joiners. In support of this view, we find that the impact of both founders and early joiners is stronger in contexts where the role of organization capital is expected to be heightened.”