Macroeconomics Seminar - Emircan Yurdagul (University Carlos III of Madrid)

Title: On the Importance of Endogenous Entrepreneurial Hours for the Wealth of Entrepreneurs

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 wealth levels and the wealth dispersion among entrepreneurs. Owner hours help poor entrepreneurs run their business and help productive owners accumulate wealth. On net, owner hours decrease the observed average wealth of active owners, i.e. the first channel dominates. Both channels imply larger wealth dispersion. Finally, alternative calibrations ignoring the endogenous labor supply of owners leads to owners that are much richer than the data and to an overstatement of the role of financial frictions in the economy.