Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130377
Authors: 
Dinlersoz, Emin
Hyatt, Henry R.
Janicki, Hubert P.
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9693
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.
Subjects: 
entrepreneurship
borrowing constraints
financial frictions
labor market frictions
worker sorting
decline in entrepreneurship
JEL: 
L26
J21
J22
J23
J24
J30
E21
E23
E24
Document Type: 
Working Paper

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