Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215198 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12802
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
entrepreneurship
wealth accumulation
labor supply
firm dynamics
JEL: 
E23
J22
J23
L26
Document Type: 
Working Paper

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