Employees versus business owners. Who is better off?
I’m on stage, presenting demographics to people, to make a living.
I often talk about the changing nature of the labor market and how Australia is losing middle class jobs while introducing more high income jobs and more low income jobs – it was actually the subject of my first column for The new daily.
When I mention that university-educated Australian workers earn much more on average than tradespeople, I am often called out by an audience member. They tell me about a plumber who makes over $200,000 a year.
The guy (over 99% of plumbers are male) the audience member is telling me about is using the ultimate cheat code to make more money. The plumber has turned into a business manager and employs a few apprentices and other plumbers. He now works more hours, has to deal with heaps of paperwork, but can take home more money.
The graph above shows that plumbers who run their own business and employ staff are much more likely to end up in the highest income bracket than plumbers who are employees. In the case of plumbers (and most trades), even independent traders (who are their own bosses but do not employ staff) earn more than their employees.
This is not the case for all professions. On average, self-employed traders earn less than employees. The real benefits come not from being your own boss, but from being someone else’s boss.
We have data from 2022 on the total number of workers in each occupation and income data from the 2016 census. All income data refer only to those employed full-time to allow for fair comparisons. By looking at this data across all occupations, we can see where being your own boss pays the most.
In order to make this analysis interesting for as many workers as possible, we will first examine only jobs with more than 10,000 workers and of which at least 5% own a company.
Sports trainers can increase their income significantly if they work for themselves. The income from such a job tends to be relatively low on average because few hours are available per week. It’s hard to teach 40 hours a week in such a job. Running your own sports coaching business results in a whopping 284% salary increase. Not bad.
There are of course a lot of limitations that come into play. Not all sports trainers could run their own business as these jobs are needed in sports clubs and studios.
Another interesting job in the top 10 list is that of sales assistant, one of the most common professions in Australia (566,000 workers). As business owners, they would own small retail outlets or stores.
A major problem with these positive case examples is called survivor bias. Independent pharmacists could theoretically earn much less than when they worked as employees. After a while, they would have closed their businesses and returned to the profession as employees. The data only measures survivors, those workers who are still self-employed.
Nevertheless, this is excellent data for understanding which professions are best suited for self-employment. It is even more useful to understand which professions seem unsuitable for self-employment.
The most unsuitable job requires a bit of explanation. As a CEO, it is better to be hired by an organization than to be the CEO of your own company. Only reasonably sized companies will hire CEOs. The median income of employees is therefore well above the top bracket measured by the ABS – no one will be shocked to learn that a CEO earns more than $156,000 a year.
Most CEOs (61%) are the founders of their own small business. Being CEO of Transurban, NAB or Qantas is obviously much more lucrative on average than being CEO of your suburban accounting firm or your small fashion brand.
The exception to the rule is founding CEOs of big, big companies like Atlassian. The same goes for general managers – the second job on the list. The other jobs in the category tend to be managers of sorts. Corporate Australia pays managers well and there are relatively few freelancers who fit these job descriptions.
Take a look at the large chart showing 348 jobs to see other trends emerging.
About a third of all jobs requiring a university education (skill level 1) are not suitable for business. The same goes for Skill Level 2 jobs.
Medium-skilled Australians (skill level 3, business certificates, vocational training) are almost exclusively better off when starting their own small business. Vocational training providers need to take this into account. Be sure to incorporate business skills into your courses.
Trades that are well established in their careers could easily be lured into TAFEs across the country if they had access to inexpensive (ideally free) courses teaching them how to start and run businesses. Employees leaving low-income jobs (skill levels 4 and 5) to start their own business are also much better off.
Equipping middle- and low-income workers (skill levels 3-5) with entrepreneurial skills can help them dramatically increase their earning power.
If you work in one of these professions, you might seriously consider becoming your own boss.
Who knows, maybe you’ll be the next $200,000+ plumber the public will tell me about?