Heterogeneous entrepreneurs from occupational choices in economies with minimum wages

This paper examines how the distribution of skills, organizational diseconomies of size, and the introduction of a minimum wage affect the total output of the economy and the relative size and average per capita income of employees, solo self-employed, and employers, in a market equilibrium from occupational choices of individuals with different skills. The model explains the heterogeneity observed among occupational groups beyond employers and employees, and predicts differences in the sing of the association between entrepreneurs’ rates and economic development depending on the entrepreneurs’ type. The introduction of a minimum wage leads to involuntary solo self-employed, more skilled voluntary solo self-employed, and fewer employers. A minimum wage lowers total output and has income redistribution effects: income per capita decreases in the individuals in the two extremes of the skills’ distribution and increases in the middle class. Copyright Springer Science+Business Media New York 2015