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

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  • Dinlersoz, Emin

    () (U.S. Census Bureau)

  • Hyatt, Henry R.

    () (U.S. Census Bureau)

  • Janicki, Hubert P.

    () (U.S. Census Bureau)

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.

Suggested Citation

  • Dinlersoz, Emin & Hyatt, Henry R. & Janicki, Hubert P., 2016. "Who Works for Whom? Worker Sorting in a Model of Entrepreneurship with Heterogeneous Labor Markets," IZA Discussion Papers 9693, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9693
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    1. repec:sae:ilrrev:v:72:y:2019:i:5:p:1123-1148 is not listed on IDEAS
    2. Daniel Fackler & Michaela Fuchs & Lisa Hölscher & Claus Schnabel, 2019. "Do Start-ups Provide Employment Opportunities for Disadvantaged Workers?," ILR Review, Cornell University, ILR School, vol. 72(5), pages 1123-1148, October.
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    6. Babina, Tania & Ma, Wenting & Moser, Christian & Ouimet, Paige P. & Zarutskie, Rebecca, 2019. "Pay, Employment, and Dynamics of Young Firms," Working Papers 21, Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute.
    7. Henry R. Hyatt & James R. Spletzer, 2016. "The Shifting Job Tenure Distribution†," Working Papers 16-12r, Center for Economic Studies, U.S. Census Bureau.
    8. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    9. Hyatt, Henry R. & Spletzer, James R., 2016. "The shifting job tenure distribution," Labour Economics, Elsevier, vol. 41(C), pages 363-377.
    10. Vera Rocha & Mirjam van Praag, 2016. "How do Entrepreneurial Bosses influence their Employees' Future Entrepreneurship Choices?," Tinbergen Institute Discussion Papers 16-110/VII, Tinbergen Institute.
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    More about this item

    Keywords

    entrepreneurship; borrowing constraints; financial frictions; labor market frictions; worker sorting; decline in entrepreneurship;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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