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

changed organizational classification in the period. By placing further constraints on the size of the
firm and degree of ownership or control, we can begin to identify small business owners who run their
businesses as widely held firms.⁷

Thus, in discussing the relationship between income mobility and small business ownership,
the study deploys two definitions of the latter. The first is a narrow definition which includes the self-
employed and owners of closely held firms. The second is a wider definition which in addition to the
categories just mentioned covers some owners of widely held firms. Table 1 presents the number of
observations used in the present study, categorized into wage earners and the two definitions of small
business owner. The wide definition gives us the figures for wage earners, as it places a number of
“wage earners” in widely held firms in the business owner category. It shows that the wide definition
increases the number of business owners substantially. As the years progress, the number of wage
earners decreases and the number of owners of small businesses grows. However, behind this overall
picture, individuals are switching occupations; an issue to which we return in Section 3.

Table 1. Number of observations, 1993-2003

3.2 Income inequality among business owners and wage earners: individual
versus household data

In most countries, income inequality is higher among the self-employed than among wage earners

(Parker, 2004), and even though we focus on a broader group of business owners, we expect this to

⁶ Some owners of closely held firms will not be identified as their income is too small to generate positive imputed labor
income under the split model.

⁷ This method also implies that some owners of closely held firms will be correctly categorized as business owners, i.e. those
who do not report imputed labor income under the split model. They are few compared to the business owners involved in
organizational shifts.

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