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

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 to become own account self-employed. We find that the information content about level and growth of productivity is different for the equilibrium share of employers than for the share of own account self-employed. Empirical evidence with data from Spanish Autonomous Communities in the period 1980-2006 confirms that the share of employers is positively (negatively) associated with current level of productivity (next period productivity growth) while the association between share of own account self-employed and productivity or productivity growth has just the opposite signs