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

specification, though). Moreover, employing a wider definition of business owners is found to enhance
relationships.

Given indications of an effect of the time frame for measuring incomes on results, see
Section 3.3 and Holtz-Eakin et al. (2000), estimations for alternative time period specifications may be
illuminating. Table 12 shows the results of an estimation of transition models for a three period
specification, transitions between 1993-1996 and 1997-1999 and between 1997-1999 and 2000-
2003. Placements in the income hierarchies are based on aggregated post-tax incomes for these three
time periods. With fewer transitions available, a pooled probit estimation is preferred, i.e., no random
effects estimation. Thus, the relevant comparisons (in terms of estimates from yearly transitions) for
the estimates of Table 12 are estimates presented in table A1 and A2 in the Appendix.

Echoing the results of Table 8, estimates presented in Table 12 show larger differences
between correlations according to both the narrow and the wide definitions of business ownership. For
instance, for upward mobility, being a business owner now increases the probability for moving into
quintile 5 by 4.7 percent according to the narrow definition and by 6.1 percent according to the wide
definition. As noted in Section 3.3, the difference between estimates derived from yearly transitions
and estimates based on data of longer periods may follow from lagged effects, and pooling of incomes
over years may affect incomes of wage earners and business owners differently, especially owners of
small businesses who have been involved in shifting the form of the organization. However, the
contribution of business ownership to mobility mainly shows that parameter estimates tend to reflect
the uncertain character of income from business ownership. As for the yearly specification, the
relationship to downward mobility and “staying-poor” have been calculated, and business ownership
is correlated to downward mobility and “staying poor” approximately in the same manner as upward
mobility and “staying rich” shown in Table 12.

Table 12. The contribution from business ownership to upward mobility and staying rich.
Results for marginal effects based on pooled probit estimations for transitions
between three periods: 1993-1996, 1997-2000, 2001-2003. Two definitions of owners
of small businesses, quintile and decile specifications, standard errors in parentheses

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