OWNERS' LABOR SUPPLY and FIRM DYNAMICS
(UNIVERSIDAD CARLOS III)
NOVEMBER 13, 2019
Abstract: Owner hours form a large part of US firms' labor input, and they have a systematic positive relationship with firm size and output. We introduce owners' endogenous labor supply into a model of entrepreneurial choice with managerial and blue-collar labor and financial frictions. The model matches well the positive relationship between owners’ effort and contemporaneous and future fi rm performance. Owner hours allow the majority of firms to stay small, yet, a small fraction of firms to quickly overcome financial frictions and have large employment growth. Reducing financial frictions increases wealth inequality at the bottom of the entrepreneurial wealth distribution and decreases wage inequality between blue-collar and managerial workers.