Author: Mickey Folkeringa Date: November 18, 2008 Exploiting Income Statistics for Entrepreneurschip Research II Workshop on Entrepreneurship Statistics Huelva, Spain 17 and 18 november 2008

EIM and Entrepreneurship Research Social-economic policy research and consultancy Research Program on SME’s and Entrepreneurship, financed by Dutch Ministry of Economic Affairs Collection and processing of survey data and statistics, scientific analysis, publication and distribution of research findings Major themes: nascent entrepreneurship, business start-ups, high growth enterprises, firm size distribution, innovation, internationalization, job creation and human resources management in SME’s

Incomes of Entrepreneurs Measuring incomes of self-employed and owner-managers: a long tradition Detailed individual income data useful for policy research: Modelling and forecasting Ex-ante effects of (fiscal) policy Ex-post evaluation of (fiscal) policy measures Income characteristics of entrepreneurs and long-term and recent developments Recent activities: towards a Monitor Incomes of Entrepreneurs

Income Statistics Income statistics operated by Statistics Netherlands Main source: citizen’s tax returns to Dutch Tax Administration Panel data: individual respondents are followed over time annually (representative sample) Detailed individual data: more than 100 income components measured for nearly 250,000 taxpayers ( with business activities as self-employed) Annual consistent data from 1989 until approximately three years in the past

Measuring Incomes of Entrepreneurs Income under-reporting by the self- employed Relatively high non-response rates to survey income questions by self-employed Tails of income distribution Differences between self-employed and owner-managers incorporated businesses (OMIB’s) Advantages of Income Statistics compared to surveys

Measuring Income Differences between Entrepreneurs and Employees Multiple functions of income for self- employed Self-employment incomes include returns to capital as well as returns to labour Social security arrangements and employee benefits that are unavailable in self- employment Differences in fiscal treatment of self- employed and paid employees Descriptive analysis: various income definitions

Some Definitions Explicit distinction between self-employed individuals and owner-managers of incorporated businesses Definitions of self-employed: Taxpayer with nonzero profits on tax return. in ,000 self-employed individuals Taxpayer with self-employment deduction on tax return; criterium: more than 1,225 hours carrying a business. In ,000 self-employed individuals Definition of owner-manager of incorporated business: taxpayer with wages manager incorporated business, without social security contributions. In ,000 owner/managers of incorporated businesses

Net Disposable Income of Entrepreneurs,

Ratio Disposable Income Self- employed/Employees,

Background of Developments Long term trends robust to other (income) definitions Decline in relative income position of self- employed also observed in other countries Great Britain (Robson, 1997) United States (Aronson, 1991) Australia (Covinck, 1983) Rise of entrepreneurship in The Netherlands Increase in heterogeneity of population entrepreneurs Decrease in ‘quality’ of entrepreneurs?

Income Components Entrepreneurs and Employees, 2004 Income component Self- employe d OMIB’sEmploye es Employement income 3,80051,30044,100 Profits from business activities 26,9002,5000 Gross income31,90061,70043,100 Disposable income 20,40036,90022,400

Other Interesting Descriptives Poverty rate of self-employed 16% (10% overall), 6% on a permanent basis (2004) Income of entrepreneurs is positively related with age Large relative income difference between male and female entrepreneurs in favour of males (40% for self-employed in 2004) Non-western ethnic entrepreneurs earn on average 20% less than native entrepreneurs

Measuring Entrepreneurship with Income Statistics Measuring mobility between occupations from paid employment to self- employment from social benefit to self-employment from self-employment to owner-manager incorporated business

Intriguing Research Questions How large is the income differential between self-employment and employment, and which factors explain these relative income differences? Why is average income of self-employed individuals declining in the long run? Why are (structural) poverty rates relatively high, while most of the entrepreneurs involved are able to continue their businesses in the long run? What are the social effects of this? How large is the intensity of mobility between different occupations, and how does this affect income positions?