The income of the Self-employed in Chile

It is quite common in discussions about social policy or about labour in Chile, to think about self-employed workers as disadvantaged, or at least, vulnerable ones. There is some assumption that salaried work is better than self-employment. And, sometimes, self-employment is treated as synonymous, or at least necessarily part, of the informal sector -and again, that sector is treated as a lower sector.

But, although, it is clear that for some self-employed those descriptions are true, it is also true about some salaried workers: There are self-employed and salaried workers in vulnerable and disadvantaged positions, but that does not necessarily describe the situation for all of them.

Since the CASEN 2009 (Encuesta de Caracterización Socioeconómica Nacional, National Survey of Socioeconomic Characterization) was released some time ago, we can use that data to analyze this situation. The sample of the CASEN is very large (45130 homes and 246924 persons in the 2009 version), since it is intended to give information on almost all municipalities in the country). For a description of the survey, see the description in the Mideplan website.

And what the data says?

The following table shows the monthly average income (for main job) in diverse kind of jobs.

Table I. Income of Main Job by Category

Income Main Job
Salaried Workers 342.222
Self-employed (without counting employers) 474.625

Source: CASEN 2009. (Chilean pesos of december 2009, 1 dollar = 501 pesos)

Self-employed workers have greater incomes than salaried workers (only public sector salaried jobs have income around the average self-employed worker). It is important to note that we are not counting employers in our average of self-employed, were we to do that the difference could be quite larger.

In other words, we can simply talk about self-employed workers as having a more disadvantaged situation. Their more unsecure and variable working conditions are compensated with larger incomes. In other words, it is not possible  to say that salaried jobs are better than self-employment.

But there is another twist to that situation. Self-employed workers have a lower educational level than salaried ones. And in Chile, income have a large association with education . The CASEN data is quite telling at this:

Figure I. Average monthly income by Years of Education (in pesos, December 2009)

Average income by years of education in Chile (CASEN 2009)Source: CASEN 2009

But, as we already said, self-employed workers do have less education than other workers: 31% of people with incomplete primary education is self-employe compared with only 12% of people with complete tertiary education. So, how it is possible that self-employed workers do have larger average incomes?

To analyze in more detail the relationship between the incomes of salaried and self-employed workers, we should keep education level constant. If we do that, we find that, for the same education level, the incomes of self-employed people are very large compared with salaried. The aggregate advantage hid the level of the advantage, since self-employed workers are more common at lower educational levels (with lower average incomes)

Table II. Income of Main Job by Educational Level

Salaried Self-employed Difference Difference (in %)
Educational Level
No education 185.288 237.116 51.828 28%
Incomplete primary 179.076 261.699 82.623 46%
Complete primary 195.880 299.148 103.268 53%
Incomplete Secondary 211.192 336.612 125.420 59%
Incomplete Secondary (technical) 248.746 388.831 140.084 56%
Complete Secondary 259.629 430.083 170.453 66%
Complete Secondary (technical) 272.277 483.677 211.400 78%
Incomplete Tertiary 343.228 580.262 237.033 69%
Complete Tertiary 716.524 1.293.967 577.443 81%
Educational Level (grouped)
Incomplete Secondary or lower 198.992 301.714 102.722 52%
Complete Secondary 263.406 443.425 180.020 68%
Tertiary 610.843 1.052.538 441.695 72%

Source: CASEN 2009. (Chilean pesos of december 2009, 1 dollar = 501 pesos)

Self-employed workers usually, at the same educational level, have main job incomes at least 50% higher than salaried. The difference is even larger in the higher education levels.   But it is relevant also in lower educational levels: A self-employed worker with incomplete primary education has an income very similar to a salaried worker with complete secondary education.

There is a point that we will not develop here, it will be a matter of a second post: For a person with low education their only way to reach high incomes is through self-employment. The averages are higher, but the largest income that they can reach (or, let say, the income at the 75 percentile) is quite higher and unreachable for salaried workers at their education level. That can be quite relevant for people who decide to go for self-employment, and that possible have, warranted or not, a high confidence in their abilities.


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