The Income of Self-employed workers in Chile: Comparing income distributions

In the previous post about the income of self-employed workers compared with the income of salaried ones we pointed out that it could be useful to compare not only averages: That self-employed workers could have a higher probability to reach high incomes than salaried workers at the same educational level. A worker with low educational level could reach a ceiling in their incomes that a self-employed worker could surpass. 

Since we are analyzing the variability of incomes, why focus on higher incomes? (for a general analysis of inequality of incomes in Chile you can see this link). One relevant reason is based on the subjectivity of actors: It is quite common that people think of themselves as above average, so their hopes are not based in reaching the average income, but to surpass it. Then, when they decide to pursue self-employment more than averages they could be more interested in compare the income of people who was successful (since they expect to be successful also). Since self-employed workers probably are even more hopeful than other workers -they need a high confidence in their own abilities to pursue that kind of work- it is interesting to see if that gamble do have some grounds to be believed. We are doing, in the end, the comparison that self-employed workers could be more interested.

Actually, this analysis was prompted by qualitative interviews with self-employed workers of low educational level that said that they simply could not get their present incomes if they were salaried (‘no employer could pay me, with primary education, what I can get as self-employed’). The idea of this post is to check if that idea is correct.

Anyway, what the data of the CASEN says?

Educational Level Salaried Workers Self-employed Difference
75th   Percentile 95th   Percentile 75th   Percentile 95th   Percentile 75th   Percentile 95th   Percentile
No education 221.000 331.500 308.100 616.200 39% 86%
Incomplete Primary 198.900 323.765 337.526 616.200 70% 90%
Complete Primary 221.000 353.600 376.671 718.900 70% 103%
Incomplete Secondary 243.100 419.900 410.800 821.600 69% 96%
Incomplete Secondary (technical) 276.250 552.500 496.417 1.129.700 80% 104%
Complete Secondary 304.985 552.500 513.500 1.038.110 68% 88%
Complete Secondary (technical) 331.500 574.600 616.200 1.334.135 86% 132%
Incomplete Tertiary 419.900 884.000 718.900 2.054.000 71% 132%
Complete Tertiary 884.000 1.989.000 1.232.400 4.108.000 39% 107%

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

The data show that the advantage of self-employed workers, at the same educational level, is even higher in high percentile than if we compare average incomes. We did the comparison in 75th percentile (basically what we can name moderate optimism: the idea that you can reach the income of the superior 25% of people) and the comparison in 95th percentile (high optimism, the idea that you will one of the ‘winners’)

Regarding 75th percentile, we find that the self-employed advantage is around 70% and 80%. Only in the extreme educational levels (the lowest and the highest) the advantage is lower, and actually lower than the average advantage. In the case of self-employed workers with complete tertiary education we can note that the income of 75th percentile is lower that the average income, a consequence of the highly skewed distribution of incomes in that group.

If we analyze the 95th percentile, we find that for all groups the advantage of self-employed workers is quite high: in several cases even doubling the income of salaried workers, and at least an 80% higher. In fact, the income of 95th percentile of self-employed workers with no education is around the level of 95th percentile of salaried workers with complete secondary education. And, even more, the income of 75th percentile of self-employed workers is, for several educational levels, around the level (or even higher) of the income of 95th percentile of salaried workers.

In other words, the advantage of income for self-employed workers is even higher for high percentile of income distribution. For a given educational level   you reach a ceiling in your income if you are salaried that can be broken if you are self-employed.


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