This paper extends the (Lucas, Bell J Econ 9: [508][509][510][511][512][513][514][515][516][517][518][519][520][521][522][523]1978) model of occupational choices by individuals with different skills, beyond the simple options of self-employment or wage-employment, by including a second choice for the selfemployed. That is, an option to hire employees and so become self-employed with employees (SEWEs), or to be self-employed without employees (SEWNEs). We solve for the market equilibrium and examine the sensitivity of relative sizes of occupational groups, and of the level of productivity, to changes in the exogenous parameters. The results show that the positive (negative) association between number of SEWEs (SEWNEs) and productivity, observed in the Spanish data, can be explained, under certain conditions, as the result of cross-region and time differences in average skills. These findings point to the importance of distinguishing between SEWEs and SEWNEs in drawing valid conclusions concerning any link between entrepreneurship and economic development.
This paper extends the (Lucas, Bell J Econ 9:508-523,1978) model of occupational choices by individuals with different skills, beyond the simple options of self-employment or wage-employment, by including a second choice for the selfemployed. That is, an option to hire employees and so become self-employed with employees (SEWEs), or to be self-employed without employees (SEWNEs). We solve for the market equilibrium and examine the sensitivity of relative sizes of occupational groups, and of the level of productivity, to changes in the exogenous parameters. The results show that the positive (negative) association between number of SEWEs (SEWNEs) and productivity, observed in the Spanish data, can be explained, under certain conditions, as the result of cross-region and time differences in average skills. These findings point to the importance of distinguishing between SEWEs and SEWNEs in drawing valid conclusions concerning any link between entrepreneurship and economic development.
We model the distributions of firm sizes and of firms' total factor productivity (TFP) as outcomes of a market equilibrium from the occupational decisions of individuals with different entrepreneurial skills, of working as employees, employers or solo entrepreneurs. The model explains empirical regularities such as: i) the positive crosssection correlation between average size of firms and average labor productivity of countries; ii) the positive association between size and TFP of firms in an economy; and iii) the power law distribution of firm sizes. Two parameters of the model, one that measures the organizational size diseconomies, and other related to the dispersion of the distribution of entrepreneurial skills in the population, appear as main determinants of the differences in firm sizes and in productivity, across economies and among firms within an economy. The results of the paper should be of interest for the design and evaluation of firm-size dependent policies.
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