Self-Employment as a Signal: Career Concerns with Hidden Firm Performance

Georgy Lukyanov (), Konstantin Popov and Shubh Lashkery

Papers from arXiv.org

Abstract: We study a stationary labour market in which risk-averse workers privately know their permanent talent and choose between risky self-employment, which produces portable public outcomes, and firm employment, which pays a competitive wage but keeps individual performance hidden. Because workers decide whether to generate another public outcome or apply to a firm, both public records and applicant pools are endogenous. We construct market beliefs from the stationary flow of types through all histories leading to each record and then condition them on the current application decision. If the effective continuation factor is below one half, a stationary sequential competitive equilibrium exists and occupational choice follows a talent cutoff at every record. Firm employment is persistent whenever it is strictly optimal for a given worker type at a given record. At any on-path record where both occupations are chosen, higher-talent workers select into self-employment, while the applicant wage lies below mean talent among workers holding that record. This wage discount decomposes exactly into the self-employed share and the talent gap between self-employed workers and applicants. The model yields within-record predictions for occupational choice, wages, subsequent performance, and the duration of opaque employment spells.

Date: 2025-09, Revised 2026-07
New Economics Papers: this item is included in nep-hrm, nep-inv, nep-lma and nep-mic
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