Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets

Emin Dinlersoz, Henry Hyatt and Hubert Janicki

No 9693, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Young and small firms are typically matched with younger and nonemployed individuals, and they provide these workers with lower earnings compared to other firms. To explore the mechanisms behind these facts, a dynamic model of entrepreneurship is introduced, where individuals can choose not to work, become entrepreneurs, or work in one of the two sectors: corporate or entrepreneurial. The differences in production technology, financial constraints, and labor market frictions lead to sector-specific wages and worker sorting across the two sectors. Individuals with lower assets tend to accept lower-paying jobs in the entrepreneurial sector, an implication that finds support in the data. The effect on the entrepreneurial sector of changes in key parameters is also studied to explore some channels that may have contributed to the decline of entrepreneurship in the United States.

Keywords: worker sorting; labor market frictions; financial frictions; borrowing constraints; entrepreneurship; decline in entrepreneurship (search for similar items in EconPapers)
JEL-codes: E21 E23 E24 J21 J22 J23 J24 J30 L26 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-01
New Economics Papers: this item is included in nep-cse, nep-ent, nep-lma, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published - published in: Review of Economic Dynamics, 2019, 34, 244-266

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Related works:
Journal Article: Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets (2019)
Working Paper: Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets (2015)
Working Paper: Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets (2015)
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