Beyond the Paycheck: Security and Inclusion

Once pay is compared for workers with similar tenure and experience, a young-firm job still cannot be judged by wages alone. This chapter examines two further dimensions of the employment relationship: whether the contract offers security and whether young firms widen access to work while treating different groups equally. The practical judgment is to keep pay, contract type, firm survival, representation, and relative treatment separate, because a young firm can look better on one dimension and worse on another.

A contract can offset one kind of risk

The OECD study uses open-ended versus fixed-term employment as an observable indicator of contract security. An open-ended contract does not eliminate every risk, but it generally provides a more durable employment relationship than a contract with a fixed end date. It can also carry non-monetary advantages such as better access to training or employer-provided benefits. The comparison is relevant to young firms because workers face a higher chance that the employer itself will leave the market in the first years of life.

The raw contract numbers initially make young firms look less secure. In France, about 29.0% of workers at young firms are on fixed-term contracts, compared with 25.3% at older firms. In Portugal, the difference is much larger: 47.4% at young firms versus 29.5% at older firms. Those figures are descriptive, not yet a clean comparison of the employers’ contract policies. Young firms contain more newly hired workers, and a new appointment is more likely to begin with a fixed-term contract than a job held for several years.

A snapshot of contract type therefore captures both the employer’s offer and the worker’s position in the contract life cycle. A fixed-term appointment at entry may later become open-ended, and the probability of conversion rises with time at the firm; in some settings, legal limits also constrain repeated temporary contracts. Older firms have had more time for those transitions to occur. The higher temporary-contract share at young firms can consequently reflect the age of the employment spell rather than a deliberate choice to provide less security to a comparable worker.

This is the contract analogue of the wage problem. A young firm’s workforce is younger in the employment relationship as well as in age. The average worker has had less time for a temporary contract to be converted into an open-ended one, whether through the firm’s normal progression or through legal limits on repeated fixed-term appointments. If tenure is ignored, the firm-age comparison confuses the stage of the contract with the security the employer offers to comparable workers.

Once tenure and other worker characteristics are included, the direction reverses. In specifications comparing workers with similar tenure, employment at a young firm is associated with a probability of having an open-ended contract that is about 6 to 7 percentage points higher than at an older firm. Among new hires, the advantage is about 7 percentage points in France and around 5 percentage points in Portugal. Worker-fixed-effects estimates, which address stable differences between people, place the advantage at roughly 3.5 to 4.5 percentage points in both countries.

The size of the estimate should be read as a difference in probability, not as a guarantee attached to an individual offer. It is an average conditional association for workers and firms represented in the relevant specification.