hold true in the present case as well. Moreover, as income mobility can be studied at the individual
and household level, we ask how far the results obtained from the use of the individual data replicate
results based on household data.
There is little theoretical guidance with regard to explaining the forces underlying the wider
income inequality found among the self-employed (Parker, 2004). It is generally accepted that
incomes from business ownership are more uncertain than wages, but causal links between these
factors and income inequality are hard to establish.
Figure 2 contains two panels; the upper panel shows changes in income inequality for
business owners and wage earners based on individual income, and the lower panel for wage earners
and self-employed based on household category. The household data are taken into account by
aggregating income over all household members, dividing the sum by an equivalence scale to allow
for economies of scale,8 and letting each household be represented with as many persons as there are
household members. The allocation of households between income earners and self-employed is based
on the status of the main income earner. The results presented on Figure 2 are reassuring with regard
to both of the questions posed by the study. First, they confirm higher inequality among business
owners than among wage earners, both at the individual and household level. Second, we see that the
individual data basically describe the period 1993-2003 in the same manner as when the household is
used as the unit of analysis. We also see (upper panel) that using the narrow or the wider definition of
owners of businesses does have effect on year-specific inequality measures. The wider definition gives
more income inequality by the end of the period, which we expected, given Thoresen and
Alstadsæter’s (2008) finding that business owners shift organizational form to reduce the tax burden
and increase post-tax income.
8 The equivalence scale is defined as the square root of the number of household members, children included.