August 17, 2021
Self-employed people are 4 times wealthier than workers, on average
- Self-employed Americans have a far larger median net worth than their regular working peers.
- Self-employment is one way to achieve economic mobility, especially as wages decline for workers.
- But who has access to that economic mobility is still uneven.
If you want to be wealthier, becoming your own boss may pay off.
A new release from the Small Business Administration’s Office of Advocacy finds that self-employed people are, on average, wealthier than their non-self-employed peers. Specifically, the median net worth for self-employed families was $380,000 in 2019; for the families of workers it was $90,000 — meaning that self-employed families had a net worth over four times larger than their peers in the workforce.
Of course, there’s an important corollary to that, per the SBA: “It is not clear if the self-employed choose self-employment because they started with greater wealthier, or if they created it, or both,” the release says.
That number is skewed by some self-employed families who are earning a whole lot more. Including those outlying wealthier families, the average wealth for self-employed families would be $2.7 million. Also, since these groups gain wealth faster, they are the reason average wealth keeps going up.
There’s also the issue of who, exactly, gets to benefit from profitable self-employment. The SBA finds that the higher net worth families are more likely to have business equity — and it makes up a larger share of nonfinancial assets for white families than their Black and Hispanic peers. White families have been increasing their business equity shares steadily over the last two decades, but, according to the SBA, those shares “fluctuate with the business cycle” for Black and Hispanic families.
The wealth that self-employed people accumulate stands in contrast to five decades of declining wages for workers. As Rep. Alexandria Ocasio-Cortez recently called out, it used to take American families 23 years to double their income; now it takes 100.
Business ownership can help build wealth for people of color, but the racial wealth gap persists
The data from the SBA makes clear “the value or potential value of business ownership in economic mobility,” can help systemically marginalized workers of color build their own wealth — a key way to help bridge the racial wealth gap.
The UNC Charlotte Urban Institute notes that Black and Latinx business owners have been found to have net worths ten times greater than their non-business owning peers, suggesting that business ownership is one powerful way for Americans of color to build their net worths.
However, in the community that the UNC report examines — Mecklenburg County in North Carolina— white-owned businesses were more likely to employ paid workers. More workers equals more success and sales, according to the report, giving these businesses a chance to accrue higher value. The JPMorgan Chase Institute finds that white small business owners held 2.5 times more liquid wealth than Black small business owners.
At the end of 2020 alone, white households held a total net worth over 20 times that of Black households, according the Federal Reserve’s Distributional Financial Accounts. In 2020, white Americans increased their total household wealth by $9.58 trillion; Black Americans added just $520 billion.
And, in 2019, the median net worth for a white family was $188,200; for Black families, it was $24,100.
But, as Insider’s Jennifer Ortakales Dawkins and Dominic-Madori Davis report, broader policy changes like awarding government contracts to Black-owned businesses and reliable, affordable broadband can help with equity and bolster those businesses.