the low end of the earnings distribution, whereas those who started up near the top of the distribution
experienced a loss, compared to the wage earners.
It should be noted that the present study focuses more on the upper part of the income
distribution, unlike many other studies of business ownership. The main issue here is business
ownership as a means of ascending to and staying in the upper reaches of the income distribution,
given that the business owners face “privileges” in terms a tax system which facilitates, if not
encourages, tax avoidance.
There are other closely related analyses of distributional effects of business ownership: for
instance, Hamiliton (2000) discusses explanations to differences in earnings distributions for self-
employed workers and paid employees, whereas Jenkins (1995) and Parker (1999) employ population
sub-group inequality decomposition methods when discussing the relationship between income
inequality and self-employment.
3. Some empirical preliminaries
3.1 Data
Identifying owners of small businesses is a challenging task, as noted by, e.g., Plesko (1995), Holtz-
Eakin (2000) and Parker (2004). The data on small businesses come in corporate and individual level
versions. This is illustrated in Figure 1, where we show developments at the personal level, the upper
panel for the period 1993-2003, and at the corporate level, the lower panel for the period 1995-2003.
In the upper panel we divide the individuals in work into wage earners and self-employed, based on
information in the Norwegian national accounts (Skoglund, 2001), derived originally from the labour
force survey. Among what are defined as the self-employed, some people organize their activities as
sole proprietorships and partnerships. The lower panel shows the corporate level data, based on
income statistics for limited companies (Statistics Norway, 2008). Corporations are either closely held
or widely held firms. A closely held firm is defined by active owners (working more than 300 hours
annually) holding more than two thirds of the shares. However, active owners in closely held and
widely held firms will normally be defined as wage earners if they work in the business they own and
hence be included in the wage earner category in the upper panel. However, as this paper argues, the
category “owners of small businesses” should include self-employed and active owners of closely held
firms. Moreover, and this is a main point here, many active owners of widely held firms should be
placed in the small business category. The idea finds empirical support in the number of business
owners who re-classified their business for tax reasons during the nineties, taking the opportunity
encouraged by the Norwegian dual income tax system to reclassify the business as a widely held firm