Discussion Paper

Entrepreneurship, saving and social mobility

Abstract: This paper examines entrepreneurship in order to analyze, first, the degree to which the opportunity to start or own a business affects the household's saving behavior and the implication of this behavior for the distribution of wealth and, second, the relationship between the extent of entrepreneurship in the economy and socioeconomic mobility, that is, the movement of families across wealth classes over time. First, a number of stylized facts based on data from the Panel Study of Income Dynamics (PSID) and the Survey of Consumer Finances (SCF) are outlined. They show relevant differences in asset holdings and wealth mobility between entrepreneurs - economic agents that own a business - and workers. Second, a dynamic general equilibrium model of income and wealth distribution with an explicit entrepreneurial choice is developed. The model is calibrated to match the key features of the data, and it is then used to obtain an estimate of the quantitative importance for capital accumulation and wealth concentration of households that undertake entrepreneurial activities, via their different microeconomic behavior. Through the modeling of the entrepreneurial activities, the model economy developed in this study generates a stationary distribution of wealth with a degree of concentration that accounts for the inequality observed in the U. S. economy. The model also successfully replicates the main patterns of socioeconomic mobility in which entrepreneurs experience higher upward mobility than workers.

Keywords: Saving and investment; Small business;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Discussion Paper / Institute for Empirical Macroeconomics

Publication Date: 1997

Number: 116