Self-employment and income – increasing inequality as a result of the development of a service oriented society

The trend to a service and knowledge-oriented society led to structural changes of the labour force. Working conditions have changed due to new technologies, increasing demands for flexibility, new and rapidly changing market situations combined with globalisation, worldwide dynamics and liberalisation of labour markets. As a result a diversity of forms of self-employed work has developed. In the literature it is stated that self-employment can be characterised by four aspects: a) heterogeneity and differentiation, b) unpredictability, c) hybridisation, as well as d) de-standardisation and mobility. On one hand this can be seen as an indication for successful economic policy, a demonstration of the flexibility of labour markets, and an increase in overall wealth. On the other hand, it may also reflect the poor economic situation of households.

In the paper the development of the income distribution will be discussed which occurs in connection with the increase of self-employment exemplarily for Germany. Our focus lies on the risk of  precarious income situation for self-employed people and we ask if we can observe rising income inequality.

The empirical analysis is done on the basis of the Microcensus of the Federal Statistical Office Germany with data covering the period 1989 to 2011.

First results indicate that we have to distinguish between at least two processes. On one hand there are the classic occupations – especially the free or independent professions such as health professionals, pharmacists, tax advisers, or solicitors. For these occupations we find a structure of the income distribution which remains homogeneous over time. On average those self-employed are well off. On the other hand, we find an increasing number of people, for whom self-employment is either the result of the possibility to use their specific human capital to work independently and to complete their life’s dream or they became solo self-employed out of the need to earn a living – especially in the case of solo self-employment. The underlying process generates an increase in inequality of income per se as these people have very heterogeneous professional histories, alternating between self-employment and dependent employment as well as phases of interrupted employment. At the same time the results show that takeing the household situation into account the income situation of households is not as precarious as the situation of individuals indicates.