DC’s startup economy- How much does it pay to work at a startup in DC compared to other companies and other cities?

Start-up companies play a vital role in the economy, fostering innovation and providing job opportunities for those who want to go at it on their own and/or prefer to work in what is typically a less hierarchical environment.  In the digital information era, the glorified image of young entrepreneurs and workers who start hugely successful companies masks some of the risks associated with working at startup companies. Typically these companies do not have the deep pockets to pay salaries comparable to established companies and failure rates among startups tend to be higher than for established companies.  This may be a risk worth undertaking as the payoffs for working at start-up companies that eventually become successful can be significant, particularly in high tech companies that go public. For younger individuals, job security and pay related to seniority and tenure can be less of a factor than for older individuals, making the risk of working at a startup less severe.

In this post we examine how average salaries for startup companies compare to salaries across companies in DC and other cities. We use industry-wide data for all age groups and then show this separately for 25-34 year olds.

Table 1: Average Salaries for Startups vs All Companies, All Age Groups

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Source: US Census Bureau, DistrictMeasured.com

  • As shown above, for all age groups, salaries at startups ranged between 56 percent and 76 percent of salaries at all companies among the comparison cities.
  • DC was at the lower end of the range at 61.2 percent exceeding only NYC at 56.2 percent.

Table 2: Average Salaries for Startups vs All Companies, 25-34 year olds

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Source: US Census Bureau, DistrictMeasured.com

  • For the 25-34 year old age group the ratio of start-up salaries compared to all salaries was higher than the average for all age groups shown in Table 1. This is likely related to the fact that salaries for younger individuals are typically lower and more compressed to begin with.
  • The ratio of pay varied considerably among cities.
  • In San Francisco and Austin, the pay for young individuals working for startups was comparable to the pay at more established companies.
  • In San Francisco the pay for 25-34 year at startups exceeded pay for all other age groups.
  • DC and New York were at the lower end of the scale again. Pay at startups was, respectively, 72.7 percent and 68.5 percent of the pay at more established companies.

Here is a summary graph of the pay ratios for all ages and the 25-34 year old age group.

Graph 1: Ratio of Salaries at Startups Compared to all Companies, Ages 25-34 and All Ages   3

Source: US Census Bureau, DistrictMeasured.com

Finally we looked to see if there was considerable variation among select industries that could explain some of the differences in pay at startups in DC compared to San Francisco for instance.

Here’s what we found:

Table 3: Startup pay to ratio to all companies among industries in San Francisco and DC, Ages 25-34

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Source: US Census Bureau, DistrictMeasured.com

Notably, in San Francisco the pay ratio for Professional Scientific and Technical Services, one of the largest industries for tech startups, far exceeded that in DC, almost 100 percent compared to 78 percent.

With the exception of Health Care and Social Services, pay ratios in the other industries also exceeded or were similar to DC.

Summary

The difference in pay ratios for start-up pay likely reflects a more vibrant start up economy in San Francisco and Austin, compared to more traditional career paths in established financial and legal services firms in DC and NYC. The causes for this could include- stronger ties to venture capital funding that provide greater financing to startups , or simply stronger competition for young talent among startups in San Francisco and Austin.

What exactly is the data?     Data on wages is from the U.S. Census Bureau, Local Employment Dynamics Data for 2014. Start-up companies are defined as firms that are less than 4 years old.

Bob Zuraski contributed to this report         

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