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Entrepreneurship and Income Distribution Dynamics: Why Are Top Income Earners Unaffected by Business Cycles?

Author

Listed:
  • Noh-Sun Kwark

    (Department of Economics, Sogang University, Seoul)

  • Eunseong Ma

    (Department of Economics, Texas A&M University, College Station)

Abstract
Business cycles affect income shares of low- and high-income groups in the U.S. economy. Income shares of the bottom three income quintiles are procyclical; while those of the other quintiles are countercyclical. However, the very top five percent income group is unaffected by the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, focusing on the top five percent income earners' share, by incorporating an entrepreneurial choice to a heterogeneous agent model with indivisible labor. Two main results emerge. First, the model economy success fully reproduces the acyclical behavior of the income share of the top five percent income earners. Economic expansions allow top income earners to have more entrepreneurial opportunities, which offset a decline in the income share of the top income earners from the workers' side. Second, the model economy replicates reasonably well the income transition matrices over occupational choices obtained from the U.S. data, which documents that entrepreneurial activities are shown to be related to upward movement to higher income groups.

Suggested Citation

  • Noh-Sun Kwark & Eunseong Ma, 2016. "Entrepreneurship and Income Distribution Dynamics: Why Are Top Income Earners Unaffected by Business Cycles?," Working Papers 1608, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    • Handle: RePEc:sgo:wpaper:1608
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    References listed on IDEAS

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    Cited by:

    1. Naijia Guo & Charles Ka Yui Leung, 2021. "Do elite colleges matter? The impact on entrepreneurship decisions and career dynamics," Quantitative Economics, Econometric Society, vol. 12(4), pages 1347-1397, November.
    2. Ahmad Fathi Alheet, 2019. "Investigating the relationship between entrepreneurial activity and economic growth: a case of Middle East," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 1036-1047, December.

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    Keywords

    Income distribution dynamics; Heterogeneity; Entrepreneurs;
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