October 30, 2014

Think the Downturn Cut Your Income?

Think your income doesn’t cover your expenses the way it used to? It could be worse, you could be self-employed.

Recently, the Census Bureau released a report which showed that the income of the typical American household fell 6.4 percent in inflation adjusted terms since 2007, the last pre-recession year. Not good.

But for the self-employed, the numbers are far worse. Between 2007 and 2010, the median income of a household headed by a self-employed person dropped 15.4 percent in real terms.

Compared to 2006 when real median income for households headed by those in business for themselves hit their post 2002 peak, the numbers are worse still. While real median income at households of wage earners fell only 1.3 percent between 2006 and 2010, the decline was a whopping 17.4 percent households of the self-employed (see chart below).

Moreover, real household income increased for those working for wages between 2009 (when the recession ended) and 2010. But it continued to decline for the self-employed, albeit by only 0.7 percent.

With this hit to their income, should we be surprised that few people in business for themselves are hiring these days?

Source: Created from data from the U.S. Census

2 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

2 Reactions

  1. There are a couple of takeaways from this information. One that I notice is that the median wage for self-employed is higher than the private sector wage, but is more volatile. Which makes sense, since the wage would most likely increase and decrease with revenue. But the shocking thing is that government workers are making more than both the self-employed and private sector. One would think government workers should be paid around the same as the private sector, if not a little bit less. Certainly not $10k+ more per year. Perhaps we should all look for government work.

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