Entrepreneurs and Welfare in Economies with Employers and Own Account Self-Employed

In this paper we extend models of market equilibrium from binary occupational choices of people with different entrepreneurial ability, to the realistic case that entrepreneurs can decide whether they hire workers and become employers or whether they become own account self-employed. We find that the information regarding productivity level and its growth is different for the equilibrium share of employers and for the share of own account self-employed. Empirical evidence using data from the Spanish Autonomous Communities for the period of 1980-2006 confirms that the share of employers is positively (negatively) associated with the current level of productivity (next period productivity growth), while the association between share of own account self-employed and productivity or productivity growth is the opposite