This analysis examines the proceeds that entrepreneurs earn from their business enterprises using data from the Survey of Consumer Finances.
Data and Methods
We use data from the Survey of Consumer Finances1. We confine our attention to the subset of households that meet one of two conventional criteria for identifying entrepreneurs in survey data: (1) a head who reports a “self-employed” labor market status or (2) reported ownership of an activley-managed business. If either condition is met, the household is included in our analysis.
Entrepreneurial income is captured by two financial statement metrics:
- Self-employed income. Questions that ask self-employed respondents “how much [do you] earn before taxes in your main job”2
- Business Profit Taken. From questions asking “(In addition to salary,) how much [was] personally received from the business before taxes?”3“
Figure 1 (below) presents a bar chart depicting the distribution of entrepreneurship-related income across all households who have a self-employed head or an actively-managed business. Recall that our sub-sample is limited to entrepreneurs only. Some observations of these findings:
- About 29% of American entrepreneurs earn no money from their businesses
- The vast majority of American entrepreneurs (59%) did not earn enough from their businesses to sustain a livelihood above the poverty line (above $15,000).
- About 15% earn more than a roughly median household income of $50,000.
- A smaller minority (2%) earned more than $200 thousand in 2016.
Entrepreneurs are often described as a comparatively wealthy group, and entrepreneurship is often portrayed as a vehicle of wealth. Only about one-seventh of U.S. households participate in entrepreneurship4 The vast majority of these businesses could only sustain the most modest livelihood, if at all. Only a small proportion of this narrow subset of American society earns enough to be counted among high income households. Overall, I read these data as suggesting that few people succeed in generating high income from their businesses.
- Federal Reserve “Survey of Consumer Finances” Data from triennial survey, 1989 to 2016. Available for download at https://www.federalreserve.gov/econres/scfindex.htm↩
- SCF variable x4112 where Head #1 is self-employed, and x4712 where Head #2 is self-employed.↩
- Variables x4131, x4731, x3337↩
- Cohen, Joseph N. 2019. “Prevalence of Entpreneurship among U.S. Households, 1989 – 2016.” OSF. March 1. osf.io/q5xmu.↩