Download This PaperHeterogeneous agents and occupational choice in a directed search market
53 Pages Posted: 24 Apr 2020 Last revised: 1 Nov 2021
Date Written: April 3, 2020
Abstract
The paper presents and analyzes a general equilibrium occupational choice model with labor market frictions and heterogeneous agents. The main theoretical contribution of this model is that, unlike previous directed search models, it allows agents to self-select not only into different sectors but also into an entrepreneurial/managerial career or a regular employment career. Making use of a stochastic output and of positive assortative matching, the model gives rise to possible equilibria where the highest ability agents become either workers or entrepreneurs/managers in the technologically intensive sector. Considering the equilibrium where workers are drawn from the middle of the ability distribution, I choose to apply the model by reproducing two stylized facts, namely that an increased regional technological development increases both top income inequality and the entrepreneurship rate in the technologically intensive sector.
Keywords: Directed search, Sorting, Occupational choices, Top income share, Entrepreneurship rate, Regional technological development
JEL Classification: D31, J31, L26, 030
Suggested Citation: Suggested Citation