Employees versus entrepreneurs. Who’s better off?

I’m on stage and presenting demographics to people for a living.

I often speak about the changing nature of the labor market and how Australia is losing middle-class jobs while introducing more high-income employment and low-income jobs. In fact, this was the subject of my first column for news gear.

When I say that university-educated workers in Australia earn much more on average than traditional workers, I’m often challenged by an audience member. They tell me about a plumber who makes over $200,000 a year.

The guy (more than 99 percent of plumbers are male) the audience member tells me about is using the ultimate cheat code to make more money. The plumber has become an entrepreneur and employs some apprentices and other plumbers. He now works more hours and has to deal with much more paperwork, but he gets more money to take home.

The graph above shows that plumbers who run their own businesses and employ staff are far more likely to end up in the highest income bracket than plumbers who are employed. In the case of plumbers (and most trades), even sole proprietors (who are their own bosses but don’t employ any staff) earn more than employees.

This does not apply to all professions. Sole proprietors earn less on average than employees. The real benefits don’t come from being your own boss but from being the boss of someone else.

We have 2022 data on the total number of employees in each occupation and income data from the 2016 Census. All income data refer to full-time employees only to allow for fair comparisons. If we look at this data across all occupations, we can see where it pays the most to be your own boss.

Employees versus entrepreneurs.  Who's better off?

To make this analysis interesting for the largest possible number of employees, we first only look at jobs with more than 10,000 employees; at least five percent have a company.

Sports coaches can significantly increase their income if they work for themselves. The income from such a job is, on average, relatively low because few hours are available per week. It is difficult to teach 40 hours a week in such a job. Running your own sports coaching business leads to a massive 284 percent pay increase. Pretty nice.

There are, of course, many limitations that come into play. Not all sports coaches can run their own businesses, as these jobs are needed in sports clubs and studios.

Another interesting job in the top 10 in sales assistant, one of the most common occupations in Australia (566,000 employees). As business owners, they would own small stores or stores.

A major problem with these positive case examples is the so-called survival bias. The data only measures the survivors, the employees who are still self-employed. Self-employed pharmacists could theoretically have earned much less than if they worked as employees. After a while, they would have closed their business and returned to the profession as employees.

Nevertheless, these are excellent data for understanding which professions are best suited for self-employment. Even more useful is to understand which domains seem unsuitable for self-employment.

The most inappropriate job requires some explanation. As a CEO, it is much better to be hired by an organization than the CEO of your own company. Only companies of reasonable size will hire CEOs. Therefore, the median employee income is well above,e the highest level measured by the ABS — no one will be shocked to learn that a CEO earns more than $156,000 a year.

Most CEOs (61 percent) are the founders of their own small businesses. Being CEO of Transurban, NAB, or Qantas is much more lucrative on average than being CEO of an accounting firm in the suburbs or a small fashion label.

The exception to the rule is the founding CEOs of big, fat companies like Atlassian. The same goes for general managers, the second job on the list. The other jobs in the category are mostly managers. Corporate Australia pays managers well, and relatively few freelancers fit these job descriptions.

Check out the big 348-lane table to see more trends emerging.

About a third of all jobs requiring a university degree (skill level 1) are unsuitable for business activities. The same is true for skill level 2 jobs.

Be sure to integrate business skills into your courses. Middle-skilled Australians (skill level 3, trade certificates, vocational training) are almost exclusively better off starting their own small business. VET providers should take this into account.

Traditions well established in their careers could easily be lured back to TAFEs nationwide if they had access to inexpensive (ideally free) courses that teach them how to start and run a business. Employees who leave low-income jobs (skill levels 4 and 5) to create their own companies are much better off.

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

If you work in one of these professions, you may want to seriously consider becoming your own boss.

Who knows, maybe you’ll be the next $200,000+ plumber the public tells me about?

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