I am a PhD Candidate in Economics at the University of Iowa. I am on the job market and will be available for interviews at the ASSA meetings in San Diego from January 2-5, 2020.
Entrepreneurship, Firm Dynamics, Occupational Choice, Wealth & Income Inequality
Department of Economics
W243 Pappajohn Business Building
The University of Iowa
Iowa City, IA 52242, United States
+1 (319) 359‑8448
Occupational Choice under Compensation Frictions [View] [Download]
Aversion to risk can drive some individuals away from entrepreneurship while others may choose dual work—part-time employment parallel to an entrepreneurial venture—to mitigate income variability in the entrepreneurial sector. This paper investigates the effects from two types of compensation frictions on the occupational choice of becoming an entrepreneur. The first friction concerns the disproportional compensation to part-time workers which reduces the value of dual work. The second friction deals with the use of contract provisions preventing employees from pursuing dual work. The results suggest that the two frictions have similar effects on occupational mobility. Both frictions are closely linked to the number of dual workers in the economy but the effect on entrepreneurship is ambiguous. The results further indicate that these compensation frictions reduce welfare among most individuals, including entrepreneurs, and for the economy as a whole. Additionally, the frictions increase wealth dispersion and lowers the median level of wealth. Applications of the results are discussed.
The Role of Dual Work as a Stepping-Stone Toward Self-Employment
Combining self-employment with employment (dual work) offers a self-insurance opportunity against income risk for prospective entrepreneurs. This paper uses data from the U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) to investigate the hypothesis that dual work is used by prospective entrepreneurs as a stepping-stone from employment to self-employment. I estimate several dynamic binary response models and include controls for time and individual effects as well as occupation based on the standard occupational classification (SOC) codes. Measures are taken to remediate issues with incidental parameters stemming from using a small number of periods as well as the initial conditions problem resulting from the dynamic structure. The results suggests that dual workers are more likely than employees to transition into self-employment. Although not significant, while increased household wealth indicates a decreased likelihood to become self-employed among all other groups, the likelihood increases with household wealth among dual workers.