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



also controlling for observed characteristics and unobserved individual effects. We want to know
whether business ownership induces upward mobility in the income hierarchy and whether business
ownership helps owners maintain a position at the high end of the income distribution.

The paper is organized as follows. Section 2 reviews earlier studies on the relationship
between occupation and income mobility. Section 3 presents the register data used in this study. We
also ask here whether the individual level data we have available for this study replicate household
level trends in income inequality before discussing initial evidence from mobility tables. In Section 4
we probe deeper into correlations between business ownership and placement in the income
distribution by estimating a random effects transition model. Section 5 closes the paper.

2. Discussions in the literature on the relationship between
involvement in small businesses and income mobility

When analyzing the relationship between income and business activities, it is important to note that
there is no obvious direction of causality; occupational choice and income will often be seen as
simultaneous variables. In the occupational choice literature, incomes or yields in different states, e.g.,
in wage employment or self-employment, are used as explanatory variables.

The main ambition of the present study is to assess the effect of involvement in business
activities on income development. In that respect the present study aligns itself with the literature on
entrepreneurship and self-employment as a means of upward mobility in the income hierarchy. This
means that the occupational choice variable crosses over to the explanatory variables. A number of
papers by Fairlie discuss business ownership and entrepreneurship as a route out of poverty and
unemployment for disadvantaged families. Two of them (Fairlie 2004; 2005), are based on estimations
of earnings regressions, and employ panel data and fixed effect identification strategies. Both show
some evidence of the claim that business ownership provides a route for economic advancement,
balanced against opportunities in the wage/salary sector.4 Similarly, Holtz-Eakin et al. (2000) note that
social climbing by dint of one’s own business acumen, as personified by the successful protagonists of
Horatio Alger’s rags-to-riches novels, has a powerful hold on American society. They estimate a
version of a Markov model by ordinary least squares, where the dependent variable is the percentile in
year
t+1, explained by the percentile in year t and a number of other explanatory variables. In order to
allow for non-linearities in the relationship between present and past positions, a quadratic
specification is employed. They find that self-employment is beneficial for individuals starting
out at

4 However, there are differences between male and female groups, as the latter do not benefit from self-employment as
business owners, according to Fairlie (2005).



More intriguing information

1. Computational Experiments with the Fuzzy Love and Romance
2. Estimating the Technology of Cognitive and Noncognitive Skill Formation
3. Micro-strategies of Contextualization Cross-national Transfer of Socially Responsible Investment
4. The name is absent
5. Empirically Analyzing the Impacts of U.S. Export Credit Programs on U.S. Agricultural Export Competitiveness
6. The name is absent
7. The Importance of Global Shocks for National Policymakers: Rising Challenges for Central Banks
8. The Institutional Determinants of Bilateral Trade Patterns
9. Inhimillinen pääoma ja palkat Suomessa: Paluu perusmalliin
10. Models of Cognition: Neurological possibility does not indicate neurological plausibility.
11. The name is absent
12. Structural Conservation Practices in U.S. Corn Production: Evidence on Environmental Stewardship by Program Participants and Non-Participants
13. Ongoing Emergence: A Core Concept in Epigenetic Robotics
14. The name is absent
15. Weather Forecasting for Weather Derivatives
16. Private tutoring at transition points in the English education system: its nature, extent and purpose
17. Dynamiques des Entreprises Agroalimentaires (EAA) du Languedoc-Roussillon : évolutions 1998-2003. Programme de recherche PSDR 2001-2006 financé par l'Inra et la Région Languedoc-Roussillon
18. Evidence on the Determinants of Foreign Direct Investment: The Case of Three European Regions
19. An Empirical Analysis of the Curvature Factor of the Term Structure of Interest Rates
20. A Study of Adult 'Non-Singers' In Newfoundland