Endogenous Hours and the Wealth of Entrepreneurs

Felix Wellschmied and Emircan Yurdagul

No 12802, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: US entrepreneurs typically work long hours in their firms and these hours form a large part of the firms' labor input. This paper studies the role of endogenous owner hours in shaping the wealth distribution among entrepreneurs. We introduce owners' endogenous labor supply into a model of entrepreneurial choice and financial frictions. The model fits well the levels and the dispersion of wealth among entrepreneurs. Long owner hours incentivize poor, highly productive individuals to be owners and help the most productive owners to accumulate large quantities of wealth. On net, owners working long hours decreases the median owner wealth and increase wealth dispersion among owners. Differently, the ability to work sufficiently short hours incentivizes owners to run low productivity firms with high wealth to income ratios. Finally, alternative calibrations ignoring the endogenous labor supply of owners lead to owners that are much richer than in the data and overstate the effect of financial frictions in the economy.

Keywords: entrepreneurship; wealth accumulation; labor supply; firm dynamics (search for similar items in EconPapers)
JEL-codes: E23 J22 J23 L26 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-11
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-dge, nep-ent, nep-lma, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: Review of Economic Dynamics, 2021, 39, 79-99

Downloads: (external link)
https://docs.iza.org/dp12802.pdf (application/pdf)

Related works:
Journal Article: Endogenous Hours and the Wealth of Entrepreneurs (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp12802

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().