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Description
We make use of data from the Family Resources Survey (FRS) and the Survey of Personal Incomes (SPI) conducted by HMRC to compare the earnings of the self-employed with those of employees, as the LFS does not ask respondents who classify themselves as being self-employed about their labor income(s). The earnings distributions for the self-employed and employees are very different. Median incomes are lower for the self-employed than for employees, but the self-employed distribution has a longer right-hand tail, so somebody 90% up the self-employment earnings distribution has higher earnings than an employee at the 90th percentile of thewage and salary distribution. For example, the median gross weekly income from self-employment in 2005 was 249 [pounds sterling] (12,948 [pounds sterling] annually), according to the FRS. This compares with 333 [pounds sterling] per week (17,316 [pounds sterling] annually) for employees (Chart A.12a). The lower weekly income for self-employed workers partly reflects the fact that 6.9% of self-employed workers actually earned nothing, or lost money as a result of their occupation in 2005. Excluding these workers causes the median gross weekly wage rate to rise to 276 [pounds sterling] (a sixth less than employed workers).
The relative success of those at the top end of the self-employed income distribution is particularly striking if one looks at means rather than medians; the pay levels of the two groups are almost identical on this measure (Chart A.12b). This indicates that there are significant returns available for successful entrepreneurs. But the fact that more than 80% of self-employed workers earn less than employees "is noteworthy considering the age distribution of the self-employed is older than that of employees (Weir, 2003)."
HMRC collects data on individuals' incomes, principally for tax modeling and forecasting purposes. A sample of this data is made available in the form of the SPI, which provides the most comprehensive and accurate official source of data on personal... |
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