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Analysis

Employees v business owners: who’s better off running the show?

Analysis

Our favourite South Australian Business Index speaker and resident demographer finds that equipping low-income workers with entrepreneurial skills can help them increase their earning capacity significantly.

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I stand on stage, presenting demographic data to people, for a living.

Often I speak about the changing nature of the job market and how Australia is losing middle-class jobs while introducing more high-income and more low-income jobs – this was, in fact, the topic of my first column for Solstice Media.

When I mention that university-educated workers in Australia earn much more on average than tradies, I often get challenged by an audience member. They tell me about a plumber who earns $200,000+ per year.

The guy (over 99 per cent of plumbers are male) that the audience member is telling me about is using the ultimate cheat code to earn more money. The plumber has turned himself into a business owner and employs a few apprentices and other plumbers. He now works longer hours, must deal with heaps more paperwork, but gets to take home more money.

The chart above shows that plumbers who run their own business and employ staff are much more likely to find themselves in the highest income bracket than plumbers who are employees. In the case of plumbers (and most tradies), even sole traders (who are their own boss but don’t employ staff) out-earn employees.

That’s not the case for all professions. On average, sole traders earn less than employees. The real benefits do not come from being your own boss, but from being someone else’s boss.

We have 2022 data on the total number of workers in each profession, and income data from the 2016 Census. All income data refers only to full-time employed persons to allow for fair comparisons. Looking at this data across all professions, we can see where being your own boss pays the most.

To make this analysis interesting for the largest possible number of workers, we will first look only at jobs with more than 10,000 workers and at least five per cent of them owning a business.

Sports coaches can increase their income significantly if they work for themselves. The income from such a job tends to be relatively low on average because not many hours are available per week. It’s hard to teach 40 hours per week in such a job. Running your own sports coaching business does lead to a huge 284 per cent pay rise. Pretty nice.

There are of course plenty of limitations that come into play. Not all sports coaches could run their own business since these jobs are needed in sporting clubs and studios.

Another interesting job in the top 10 list is sales assistant, one of Australia’s most common professions (566,000 workers). As business owners, they would own small retail outlets or shops.

A major problem with these positive case examples is called survivor bias. Self-employed pharmacists could have theoretically earned 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 the survivors, those workers who are still self-employed.

Nonetheless, this is an excellent bit of data to understand which professions are most suited to self-employment. Even more helpful is to understand which professions appear to be unsuited for self-employment.

The most unsuited job requires a bit of an explanation. As a CEO, you are much better off being hired by an organisation than being the CEO of your own company. Only companies that are of reasonable size will hire CEOs. The median employee income, therefore, is well above the top bracket that the ABS measures – nobody will be shocked to hear of a CEO earning more than $156,000 per year.

Most CEOs (61 per cent) are the founders of their own small businesses. Being the CEO of Transurban, NAB or Qantas is obviously much more lucrative on average than being the CEO of your suburban accounting firm or little fashion label.

The exception to the rule is the founding CEOs of big, fat companies like Atlassian. The same is true 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 self-employed workers who fit these job descriptions.

Have a look at the big table featuring 348 jobs to see more trends emerge.

About a third of all jobs requiring university-level education (skill level 1) are unsuited for business endeavours. The same is the case for skill level 2 jobs.

Middle-skilled Australians (skill level 3, trade certificates, vocational training) are almost exclusively better off when starting their own small businesses. Vocational training providers should take notice. Make sure to integrate business skills into your courses.

Tradies who are well established in their careers could easily be enticed back into TAFEs around the country if they had access to cheap (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 enterprises are also much better off.

Equipping middle- and low-income workers (skill levels 3-5) with entrepreneurial skills can help them to increase their earning capacity significantly.

If you are working in one of these professions, you might seriously want to think about becoming your own boss.

Who knows, maybe you will be the next $200,000+ plumber that audiences tell me about?

This article was first published at The New Daily, read the original article here.

Join InDaily’s business readers at the South Australian Business Index in September. EOFY tickets go on sale at a 10 per cent Earlybird Discount tomorrow.

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