Solo self-employed versus employer entrepreneurs: determinants and macro-economic effects in OECD countries

Abstract

We estimate an extended version of the three-equation model of Carree et al. (Small Bus Econ 19(3):271–290, 2002) where deviations from the ‘equilibrium’ rate of self-employment play a central role determining both the growth of self-employment and the rate of economic growth. In particular, we distinguish between solo self-employed and employer entrepreneurs, and allow for different ‘equilibrium’ relationships of these two types of independent entrepreneurship with the level of economic development. In addition, we also allow for different economic growth penalties of deviating from the ‘equilibrium’ rate for these two types. Using data for 26 OECD countries over the period 1992–2008, we find that the ‘equilibrium’ rate of solo self-employment seems to be independent of the level of economic development, whereas the ‘equilibrium’ rate of employer entrepreneurship is negatively related to economic development. Regarding the impact of deviating from the ‘equilibrium’ solo self-employment rate, we find that both positive and negative deviations diminish economic growth. For employer entrepreneurship we do not find such a growth penalty.