Production complementarities and flexibility in a model of entrepreneurship

The focus of this paper is the flexibility in working hours as a motive for entrepreneurship. The model exhibits inflexibilities for workers and entrepreneurs, which arise due to complementarities in production. In addition, it allows for volatile value of leisure to make flexibility in hours desirable. Differences in occupation-specific flexibility, disciplined with the observed patterns in hours (level, persistence, dispersion) and income (persistence, dispersion), can explain relatively low income levels of entrepreneurs in the US and the occupation-specific distributions of working hours and income. Policy relevance of the model features is discussed using experiments of workweek restrictions and income taxation.