Income Mobility of Owners of Small Businesses when Boundaries between Occupations are Vague

respectively, where m is the number of income classes and π_j is the initial income distribution. PS
measures the average probability across all income classes that a person leaves the initial class in the
succeeding period, whereas B measures the average number of income classes crossed by all
individuals; see e.g., Formby et al. (2004) for more details.

The results of Table 5 confirm the substantially higher income mobility of small business
owners than wage earners. Both measures of income mobility show this across all three time periods.⁹

Table 4. Income mobility of wage earners and owners of small businesses, 1993-1994, 1997-
1998, and 2002-2003

Occupational status

Improvements in the relative positions of owners of small firms may also be reflected by this
occupational group’s overrepresentation at the high end of the income distribution: firm owners are
immobile at the top of the income distribution. To test this hypothesis, we compared results from
Table 4 to similar mobility tables for wage earners. The result for wage earners is presented in Table 6.
The relevant comparison is the probability of staying in quintile 5 (quintile 5 both at t-1 and at t) over
the probability of being in quintile 5 in period t-1 for owners of small businesses (Table 4) and wage
earners (Table 6). Both tables generate probabilities for staying in quintile 5 around 0.8. In other
words, staying rich does not appear to be affected by business ownership, according to the mobility
tables.

⁹ There are probably effects from ageing in the panel, which may account for some of the reduction in mobility for wage
earners.

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