Evidence that households where the head of household is self-employed have substantially higher wealth levels. This outcome is particularly strong for minority and women business owners.
Although business ownership may not be the primary way that most individuals and families build wealth in the United States, in any capitalist economy it’s a route that cannot be ignored. Especially when the rules of that economy have been set such that in the past two decades, much of the growth in income inequality has been driven by a combination of returns to capital and, at the highest levels, pass-through business income.1 Although business ownership is clearly driving income generation and wealth accumulation among the top 10% and 1%, it can and should have a role in raising wealth levels for those in the bottom quintile of the wealth distribution.
"There is evidence that households in which the head of household is self-employed have substantially higher wealth levels. This outcome is particularly strong for minority and women business owners."
While it may be harder to draw the connection between the ownership of mom-and-pop enterprises or self-employment and wealth accumulation, there is evidence that households in which the head of household is self-employed have substantially higher wealth levels than those in which the head works for someone else.2 Research has found this outcome is particularly strong for minority and women business owners and that the median net worth for Black business owners is 12 times higher than Black nonbusiness owners.
But while Black and Hispanic families are about as likely as white families to own wealth in the form of equity in a closely held business, the level of wealth they hold is lower. The images below show time-series data from the Survey of Consumer Finances on the share of families with wealth from a closely held firm and the median value of business equity (from analysis by the Institute for Economic Equity at the Federal Reserve Bank of St. Louis).4 Data on both measures are quite volatile over time, but the general trend is that Black families have about half the level of business equity as white families, with Hispanic families having wealth levels somewhere in between the two.
This essay is part of book, "The Future of Building Wealth: Brief Essays on the Best Ideas to Build Wealth—for Everyone"
Download a copy of the whole book here: futureofwealth.org/the-book
