Are the self-employed really that poor? Income poverty and living standard among self-employed in Sweden

Abstract

Small enterprises are often highlighted by politicians as important engines of economic growth and job creation. However, previous research suggests that self-employment might not be equally beneficial for individuals in terms of their income compared to regular employment. Several studies have in fact found that the self-employed may face a substantially higher poverty risk than do regular employees. The aim of the present study is to investigate to what extent income poverty is a good predictor of actual living standards among the self-employed. Is the relationship between income poverty and living standards different for self-employed compared to the regularly employed? To investigate this question we use a unique Swedish survey dataset including regularly employed (n 2,642) as well as self-employed (over-sampled, n 2,483). Income poverty is defined as living in a household with less than 60% of the median household income. Living standards are measured with a deprivation index based on 29 consumption indicators. The results show that even though income poverty is more prevalent among the self-employed than among the regularly employed, no evidence can be found suggesting that the self-employed have a lower standard of living than the regularly employed. Furthermore, when specifically comparing income poor self-employed with income poor regularly employed, we find that the income poor self-employed score significantly lower on the deprivation index even after the compositional characteristics of both groups are taken into account. The conclusion is that poverty measures based on income data underestimate the actual living standard of the self-employed.