Number of Self-Employed or Number of Firms as Measures of Entrepreneurship: Does it Matter?

Abstract

This paper compares the information content of the number of persons self-employed with the number of active firms, as measures of the entrepreneurial resources of an economy. Our purpose is to examine whether the two variables respond equally to the same potential sources of variability (region, industry, time) and whether they are associated in the same manner with standard measures of economic activity such as employment creation and GDP growth. The data for the empirical analysis come from Spanish Autonomous Communities and industries for the period from 1994 through 2006. We found that growth in the number of self-employed is uncorrelated with time, industry and region specific effects while these three sets of effects largely explain growth in number of firms. We also found that employers and own account self-employed respond differently to external pressures. These results confirm that the reasons why individuals decide to be self-employed and to create a firm are different and deserve an individualized study.