Income and Wealth: 

How Did Households Owning Small 

Businesses Fare From 1989 to 2004?

by 

George W. Haynes 

Bozeman, MT 59715 

for 

Under contract no. SBAHQ-05-M-0408 

Release Date: April 2007

 

This report was developed under a contract with the Small Business Administration, 

Office of Advocacy, and contains information and analysis that was reviewed and edited 

by officials of the Office of Advocacy. However, the final conclusions of the report do not 

necessarily reflect the views of the Office of Advocacy. 
Income and Wealth: How Did Households Owning Small 

Businesses Fare From 1989 to 2004?

by George W. Haynes, Bozeman, MT 59715

2007 [60 pages]. Under contract number SBAHQ-05-M-0408

This report was developed under a contract with the Small Business Administration, Office of Advocacy, and contains information

and analysis that was reviewed and edited by officials of the Office of Advocacy. However, the final conclusions of the report do not 

necessarily reflect the views of the Office of Advocacy.

Introduction

The 1990s were marked by the largest peacetime 

expansion in the U.S. economy. Income and wealth 

of American households rose significantly during this period. This report continues the study of 

wealth and income of U.S. families that own businesses. An earlier study, How Did Small BusinessOwning Households Fare During the Longest U.S. 

Economic Expansion? can be accessed on the 

Advocacy website at www.sba.gov/advo/research/

rs276tot.pdf. The study has been extended through 

2004, so that it covers 1989 to 2004. In addition, 

changes in income and wealth of households with 

self-employed individuals are examined in an 

appendix.

Overall Findings

Families owning businesses remained significantly 

more likely to be high income earners and high 

wealth holders than families not owning businesses. However, income and wealth for households 

owning businesses are more sensitive to fluctuations in economic activities. As a result, the selection of time periods for assessing the income and 

wealth growth of households owning small businesses relative to non-business-owning households 

significantly affects the outcome of the analysis. 

Consequently, when the time period from 1989, a 

peak year, to 2004, a mid-recovery year, is selected, 

it appears that households owning small businesses 

made less progress in accumulating wealth than 

other households. In other words, the likelihood of 

being a high wealth household increased at a faster 

rate for those without a small business than for 

those with a small business. However, this result 

was not supported when the time period from 

1992, an early recovery year, to 2004, a mid-recovery year, is selected; households with and without 

small businesses appeared to have very similar 

changes in income and wealth during this period.

Highlights

• For the period between 1989 and 2004, the 

income gap between households with and without 

a business widened, and the wealth gap narrowed. 

Small-business-owning households were now just 

over two times more likely to be classified as high 

income (55.2 percent versus 24.8 percent) and about 

seven times more likely to be classified as high 

wealth (20.2 percent versus 3.0 percent). However, 

the picture is not as evident when the period 

between 1992 and 2004 is under consideration. 

• Multiple business owners still appeared to be the 

most prosperous small business group, with nearly 

three-fourths of them classified as high income and 

nearly one-half classified as high wealth.

• Real mean income was significantly higher in 

2004 than in 1989 for all household types, increasing by over 15 percent from $60,150 in 1989 to 

$69,629 in 2004. Households not owning a business realized a real mean income increase of 16.1 

percent from 1989 to 2004, while households 

owning a small business realized a real mean 

income increase from $139,040 to $142,559 (or 2.5 

percent). However, for the time period between 

1992 and 2004, households owning a small business realized a real mean income increase of 44 

percent, compared with 31 percent for households 

not owning a business. 

• Real mean wealth increased by 60 percent for 

the entire sample from 1989 to 2004. Households 

not owning a business realized a real mean wealth 

increase of 61 percent, while households owning a 

April 2007 No. 300
small business realized an increase in wealth from 

$944,705 to $1,445,385 (or 53 percent). Again, for 

the time period from 1992 through 2004, households owning a small business realized an increase 

in real mean wealth of 77 percent, compared with 

68 percent for households not owning a business.

• Households owning a small business realized an increase in the share of income earned 

(24 percent in 1989 and 26 percent in 2004) and a 

decrease in the share of wealth (48 percent in 1989 

and 46 percent in 2004) held from 1989 to 2004. 

• In 1989, multiple business households constituted about 16 percent of all small-business-owning households; however, they earned more than 

30 percent of total household income and held 

more than 38 percent of the wealth of small business owners. In 2004, they constituted nearly 18 

percent of all small-business-owning households; 

however, they now earned nearly 35 percent of 

total household income and held 47 percent of the 

wealth of small-business-owning households.

• The multivariate analysis using the 1989 and 

2004 Survey of Consumer Finances (SCF) datasets suggests that households owning small businesses appear to have accumulated wealth at a 

slower rate than other households over this period 

of time. However, this result was not supported by 

the 1992 and 2004 SCF datasets.

• The multivariate analysis using the 1989 and 

2004 SCF datasets suggests that households owning small businesses appear to have increased 

income at about the same rate as other households 

over this period of time. This result was supported 

by the 1992 and 2004 SCF datasets.

• The multivariate analysis using the 1989 and 

2004 SCF datasets suggests that households owning multiple small businesses fared (in accumulated wealth and earned income) about the same 

as other households owning small businesses from 

1989 to 2004. This result was supported when the 

1992 and 2004 SCF datasets were used.

Methodology

This study utilized the survey data collected in the 

Surveys of Consumer Finance from 1989 through 

2004. The variables of interest include each 

household’s business ownership status, income, 

and wealth (including assets and debt held by 

members of the household). Small business owners included owner/managers with one or more 

than one business, and small business owners with 

no active management responsibilities in any business. (In the appendix, small business owners are 

defined to include self-employed individuals who 

indicated no business ownership.)

This study is primarily descriptive, using family income and wealth to compare households 

owning at least one business with households not 

owning a business. The probability of being classified as high income and/or high wealth by each 

group is estimated, real mean income and wealth 

are compared, and the shares of each group in 

the total family income and aggregate wealth in 

both years are estimated for comparison. The 

probability of being high income and/or high 

wealth is examined using two measures. The first 

measure examines the probability that a household has $50,000 (in 1992 dollars) of total income 

and/or $1 million (in 1992 dollars) of accumulated 

wealth. The second measure examines the probability that a household is in the top 50 percent 

of income earners and/or the top 50 percent of 

wealth holders in each year. Logistic regression 

models are used to assess the types of families 

and business owners more likely to be classified 

as high income or high wealth. This study uses 

nonlinear logistic regression models to predict the 

likelihood of high household income or wealth 

from binomial classifications of high income (yes/

no) and high wealth (yes/no).

This report was peer-reviewed consistent with 

Advocacy’s data quality guidelines. More information on this process can be obtained by contacting the Director of Economic Research at 

advocacy@sba.gov or (202) 205-6533.

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Income and Wealth: 

How Did Households Owning Small 

Businesses Fare From 1989 to 2004?

by 

George W. Haynes 

Bozeman, MT 59715 

for 

Under contract no. SBAHQ-05-M-0408 

Release Date: April 2007

 

This report was developed under a contract with the Small Business Administration, 

Office of Advocacy, and contains information and analysis that was reviewed and edited 

by officials of the Office of Advocacy. However, the final conclusions of the report do not 

necessarily reflect the views of the Office of Advocacy. 
3

Introduction 

 During the 1990s, amid the largest peacetime expansion ever in the U.S. 

economy, the number of small business employers grew by over 11.4 percent to more 

than 5.6 million (SBA, 2003). These small businesses hired nearly 14 percent more 

people over the 1990s, reaching a total of more than 57 million employees in 2000. The 

Dow Jones Industrial Average increased from less than 2,600 points in early January 

1990 to over 12,000 points in January 2000; unemployment rates declined from 6.9 

percent to less than 5 percent; and consumer confidence soared. This growing economy 

stimulated growth in the number of businesses, owner and investor income, payments to 

employees working for these businesses, and household wealth. Using the Board of 

Governors of the Federal Reserve’s Survey of Consumer Finances, this study examines 

two important questions: 

(1) Did households owning small businesses realize larger increases in 

income and wealth than households not owning small businesses from 

1989 to 2004? 

(2) Who are the small business owners earning the income and accumulating 

the wealth (who were the winners and losers among small business 

owners)? 

The general economic expansion of the 1990s has dramatically increased the 

wealth of some individuals while leaving others with less modest increases, or decreases, 

in wealth. While there was ample discussion of the growth of businesses in the U.S. 

during the past 20 years, there is very limited knowledge about the owners (individuals or 

households) that owned privately held businesses in the U.S. The public debate about 
4 

wealth distribution and income inequality centered around the divide of the rich versus 

the poor or the wealthy versus the poverty-stricken, rather than those that owned and/or 

operated businesses versus those that worked for others and the unemployed. This study 

examines changes in the distributions of income and wealth for three primary types of 

households: households not owning a business, households owning and managing only 

one small business (single business owners), and households owning and managing at 

least one small business and owning other businesses (multiple business owners). Using 

this classification of households (and business owners) and the Surveys of Consumer 

Finance from 1989 to 2004, this study assesses changes in the income earned and wealth 

accumulated by different types of small businesses from 1989 to 2004. 

Literature Review 

 The financial situation of U.S. families changed substantially between 1983 and 

2004. The literature review examines relevant literature assessing changes in income and 

wealth of U.S. families. Special attention is given to evidence on changes in the income 

and wealth of U.S. families who own one or more small businesses. A relatively 

comprehensive literature exists on the financial condition (income and wealth) of 

families, but the literature is much less comprehensive for that subset of families who 

own businesses. The Federal Reserve Board assesses recent changes in the U.S. family 

finances every three years when summarizing results derived from the most recent 

Survey of Consumer Finances (Kennickell and Shack-Marquez, 1992; Kennickell and 

Starr-McCluer, 1994; Kennickell and Starr-McCluer, 1997; Kennickell, Starr-McCluer 
5

and Surette, 2000; Aizcorbe, Kennickell and Moore, 2003; Bucks, Kennickell and Moore, 

2006). 

Between 1983 and 1989, real mean family income increased ($44,400 to $51,700 

in 1998 dollars) while real median family income remained virtually unchanged at around 

$32,000 (Kennickell and Shack-Marquez, 1992). Mean wealth rose by over 24 percent, 

while median wealth rose nearly 10 percent. These findings suggest that family income 

and wealth became somewhat more concentrated among families with higher income and 

wealth, respectively. Kennickell and Shack-Marquez (1992) suggest that several factors 

affected family income and wealth, including financial deregulation; progressive 

elimination of tax deductions for consumer interest; and tax changes, such as the 

elimination of general deductions for individual retirement accounts. 

Between 1989 and 1992, real mean and median family income and real mean and 

median family wealth decreased (Kennickell and Starr-McCluer, 1994). Several 

important changes occurred during this period of time. Interest rates declined and 

families tended to move their asset portfolios away from time deposits and toward mutual 

funds; families owned more tax deferred retirement accounts; and income and wealth 

grew substantially for non-White and Hispanic families. 

Between 1992 and 1995, real mean and median family income increased slightly, 

although not sufficiently to offset the declines realized from 1989 to 1992 (Kennickell 

and Starr-McCluer, 1997). By 1995, median income and wealth were nearly the same as 

in 1989, however mean income and wealth had not fully recovered. This period of time 

from 1992 through 1995 was one of continued economic expansion in the U.S. economy. 

By 1998, real mean and median family income had surpassed their 1989 levels, having 
6 

exhibited strong growth between 1995 and 1998. This period was marked by an increase 

in the holding of stock equity and a booming stock market (Kennickell, Starr-McCluer 

and Surette, 2000). While family indebtedness increased over this period of time, asset 

growth was more rapid. At this juncture in 1998, the economy was in the seventh year of 

an economic expansion. Civilian unemployment was around 4.5 percent, and the average 

annual inflation rate of 2.2 percent, as measured by the consumer price index, had been 

low for the previous 3 years. Mean and median family income continued to grow from 

1998 through 2001, with the fastest growth occurring among higher income households 

(Azicorbe, Kennickell and Moore, 2003). 

Recently released data from the Federal Reserve Board shows that the median 

value of real family income continued to trend upward, while the mean value of real 

family income actually declined (Bucks, Kennickell and Moore, 2006). This result may 

suggest distributional changes within the groups. The authors suggest that three important 

shifts occurred during this time: (1) house values appreciated and homeownership 

increased; (2) prices in the equity market generally recovered; and (3) the debt to asset 

ratio increased. 

From 1989 through 1998, real family income and wealth increased in the U.S. 

However, this growth in family income and wealth did not appear to be evenly 

distributed across the economy. Using the 1989 through 1995 Survey of Consumer 

Finances, Wolff (1998) argued that the distribution of wealth had become much less 

equal and that only households in the top 20 percent of income and wealth made any 

substantive gains. He suggested that all other groups suffered real wealth and income 

losses. 
7

While no other authors addressed small business owners, Wolff (1998) argued 

that “. . . small business equity, which tends to move with stock prices, is also highly 

concentrated among the rich.” While small business owners may have realized an 

increase in the value of their assets with the increase in the stock market, other evidence 

suggests that small business owners hold more debt than non-business-owning families 

(Haynes and Avery, 1996). In addition, recent research suggests that small business 

owners are willing to assume more risk and hold more risky portfolios of assets (Xaio, 

Alhabeeb, Hong and Haynes, 2001). Thus, whether or not families owning small 

businesses improved their financial status between 1989 and 2004 is an open question. 

This study examines changes in the real income and wealth of families owning small 

businesses to determine if they have higher mean income and wealth and increasing or 

decreasing shares of total income and wealth from 1989 to 2004. 

Conceptual Considerations 

 This study utilizes a household decision-making model to assess the success of 

small businesses, as measured by changes in income and wealth. While most other 

studies of small business success utilize the profit function to measure success, this study 

utilizes household income and wealth to assess the success of business-owning 

households. This strategy for addressing small business issues was originally suggested 

by Lopez (1986) in the following statement: 

“ . . . the financial resources of the small firm are arguably intertwined with those 

of the household. This interdependence of resources suggests a theoretical model, 

where the small business activity is integrated into the household utility 

maximization model.” 
8 

This conceptual model maximizes household utility subject to time and budget 

constraints, where the business’ profit function is embedded in the budget constraint. 

Recent work by Haynes and Onochie (2005) suggests increases in the available cash in 

the business from higher gross sales or net profits brings more cash into the household, 

while only increases in the value of business (wealth) increases the amount of money 

spent on other household assets. Interestingly, these financial indicators of the businesses 

were not associated with measures of general well-being in the household. 

In general, this model suggests invoking the weak separability assumption and 

treating the business profit function in isolation fails to recognize the intermingling of 

resources between the business and household. This study recognizes the importance of 

the intermingling of resources and examines two hypotheses: 

(1) Households owning small businesses realized larger increases in income 

and wealth (and in the probability of being classified as high income and wealth) than 

households not owning small businesses from 1989 to 2004; and 

(2) Households owning multiple small businesses realized larger increases in 

income and wealth (and in the probability of being classified as high income and wealth) 

than other households owning small businesses from 1989 to 2004. 

 

Empirical Considerations 

 This section summarizes the data utilized in this study from the 1989 and 2004 

Surveys of Consumer Finances and presents the statistical models employed. While this 

study is primarily a descriptive study of small businesses in two time periods, it employs 
9

multivariate logistic and linear regression models to assess the determinants of high 

income and wealth among households owning small businesses. 

Data 

The 1992 through 2004 Surveys of Consumer Finances (SCF) were conducted for 

the Federal Reserve Board by the National Opinion Research Center at the University of 

Chicago. The 1989 SCF was collected by the Survey Research Center at the University of 

Michigan. The surveys are designed to supply detailed and reliable information on 

balance sheets, use of financial services, pensions, labor force participation, cash income 

and demographic characteristics of U.S. households. 

The SCF utilizes a dual frame sample to provide adequate coverage of the 

population. One frame is a multistage area probability sample, which provides adequate 

coverage of widely held assets and liabilities. The second frame is a list design employed 

to over-sample relatively wealthy households. Response rates for the area probability and 

list samples in 1989 and 2004 were approximately 70 and 30 percent, respectively. 

Research conducted by the Federal Reserve Bank suggests that nonresponse is 

positively correlated with wealth. This study is primarily interested in examining small 

business-owning families. However, the entire sample is employed to assess the 

differences between business-owning and non-business-owning families. The SCF survey 

asks respondents about the previous year; hence the SCF for 2004 actually gathers 

information about the finances of the family and business in 2003. 

The variables of interest in this study include business ownership status of the 

household, household income, and household wealth (including assets and debt held by 
10 

members of the household). Business ownership status was determined by whether an 

individual owned and/or actively managed at least one business. Households owning 

large businesses (500 or more employees) and households with only investors (owner, 

but not managers) were not included in this study. Small business owners are separated 

into two categories: single business owners, who own and manage only one business; and 

multiple business owners, who own and manage at least one small business and own (and 

possibly, manage) other businesses. 

Financial data, such as income and wealth data, often have a substantial 

percentage of missing values. The SCF is a fully imputed data set with five separate 

implicates available for every missing value. This study utilizes only one implicate in the 

SCF. Household income and wealth were computed using all of the financial information 

reported in the SCF. Household income is computed by summing the following sources 

of income: wages, and salaries, interest, dividends, asset sales, rents, unemployment, 

child support, welfare, social security, and other sources. The wealth of the household 

was determined by generating a balance sheet, using a program supplied by the Federal 

Reserve Board, to estimate the wealth of each household. Total wealth was computed by 

subtracting total liabilities from total financial and nonfinancial assets. Financial assets 

were computed by summing the value of transaction accounts, certificates of deposit, 

directly held mutual funds, stocks, bonds, individual retirement accounts, saving bonds, 

cash value of life insurance, other managed assets, and other financial assets. 

Nonfinancial assets were computed by summing the value of vehicles, primary residence, 

other residential real estate, equity in nonresidential real estate, business interests, and 

other nonfinancial assets. Liabilities were tabulated by summing the value of housing 
11

debt, other lines of credit, debt for other residential property, credit cards, installment 

loans, and other debts. 

This study will discuss the changes in income from 1989 to the most recent data 

collected in 2004. All income figures have been adjusted to 2004 dollars using the current 

Consumer Price Index (CPI) as employed by Bucks, Kennickell, and Moore (2006). 

 Control variables include personal and demographic characteristics of the 

household head and business owner, and characteristics of the business. The personal and 

demographic characteristics include age, race (White, Black, Hispanic, and other), 

gender, education (no high school diploma, high school diploma, some college, and 

college degree or more), marital status (married, previously married or never married), 

and public stock and real estate ownership (yes or no). Business characteristics include 

number of employees, age of the firm, legal organization, industrial classification, and 

founding strategy. 

 The sampling frame for this analysis is U.S. households, which are referred to as 

families in this report. Personal and demographic characteristics are those characteristics 

of the respondent interviewed, typically the household head. If the respondent or 

someone in the household owns and manages a business, this study is referring to the 

largest business. No business information is available for businesses owned but not 

managed by the respondent. Small businesses are those businesses with fewer than 500 

employees that are owned and managed by a family member. 
12 

Models 

 This study is primarily descriptive, where family income and wealth are compared 

for business and non-business-owning families from 1989 to 2004. This descriptive 

analysis requires the careful comparison of means using regression analysis to assess 

differences among business and non-business-owning families across time (1989 through 

2004). The most important questions assessed in this study are the following: (1) Did 

households owning small businesses realize larger increases in income and wealth than 

households not owning small business from 1989 to 2004, and (2) who are the small 

business owners earning the income and accumulating the wealth (most importantly, did 

households owning multiple small businesses realize larger increases in income and 

wealth than households owning single small businesses)? Logistic and linear regression 

models are used to examine these two questions for two time periods, 1989 to 2004 and 

1992 to 2004. 

The first set of models utilize dummy variables for the year 2004 and households 

with a small business to determine whether households owning a small business fared 

better from 1989 to 2004 than other households. The variables of interest are the main 

effects on the dummy variables (year 2004 and small business) and the interaction term. 

Six separate models are used in this study: (1) logistic regression model to examine the 

probability of being high income, where high income is earning $50,000 in 1992 dollars; 

(2) logistic regression model to examine the probability of being high wealth, where high 

wealth is holding $1 million in 1992 dollars; (3) logistic regression model to examine the 

probability of being high income, where high income is being in the top 50 percent of 

income earners; (4) logistic regression model to examine the probability of being high 
13

wealth, where high wealth is being in the top 50 percent of wealth holders; (5) linear 

regression model utilizing log of household income as the dependent variable; and (6) 

linear regression model utilizing log of household wealth as the dependent variable. The 

six models are specified as follows: 

HI = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership) 

 where HI = high income (1=greater than $50,000 in 1992$) 

SB = household with a small business dummy variable; 

 Y04= year dummy variable for 2004; 

age = age of the household head (dummy variables for less than 

35, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and 75 or older); 

race = race of the household head (dummy variables for White and 

other); 

gender = gender of household head (dummy variables for male and 

female); 

education = education level (categorical variables for some high 

school, high school graduate, some college, college 

graduate); 

marital status = marital status (dummy variables for married or 

otherwise); 

stock ownership = owns publicly traded stock (yes=1, no=0); and 

real estate ownership = owns real estate (yes=1, no=0). 

HW = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership) 

 where HW = high wealth (1= greater than $1 million in 1992$) 

 all other variables are the same as above. 

HI50 = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership) 

 where HI10 = high income (1=top 50% of income earners) 

 all other variables are the same as above. 

HW50 = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership) 

 where HW10 = high wealth (1=top 50% of wealth holders) 

 all other variables are the same as above. 

Log income = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, 

stock ownership, real estate ownership) 
14 

Log wealth = f(SB, Y04, SB*Y04; age, race, gender, education, marital status, 

stock ownership, real estate ownership)

Using the first model (high income logistic regression) as an example, a positive 

and significant coefficient on the year variable would indicate that all households have a 

higher probability of being classified as high income in 2004 than 1989. A positive and 

significant coefficient on the small business variable would indicate that households with 

a small business owned and operated by a household member would have a higher 

probability of being classified as high income than other households without a small 

business owned and operated by a household member. A positive and significant 

coefficient on the interaction term would indicate that households with small businesses 

fared better than other households from 1989 to 2004. This same analysis was conducted 

for 1992 to 2004 to test for the robustness of these results over time. 

The second set of regressions utilize the same dummy variable for the year 2004 

and a dummy variable to identify households owning multiple small businesses to 

determine whether households owning multiple small businesses fared better from 1989 

to 2004 than households owning just one small business. This set of regressions uses 

observations for households owning and managing one or more small businesses only. 

The variables of interest are the main effects on the dummy variables (year 2004 and 

multiple small business ownership) and the interaction term. The second set of models is 

specified as follows: 

HI = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership, employ, firm_age, org, sic, found) 

 where HI = high income (1=greater than $50,000 in 1992$) 

MB = household with a multiple small businesses dummy variable; 

 Y04= year dummy variable for 2004; 

age = age of the household head (dummy variables for less than 

35, 35 to 44, 45 to 54, 55 to 64, 65 to 74, and 75 or older); 
15

race = race of the household head (dummy variables for White and 

other); 

gender = gender of household head (dummy variables for male and 

female); 

education = education level (categorical variables for some high 

school, high school graduate, some college, college 

graduate); 

marital status = marital status (dummy variables for married or 

otherwise); 

stock ownership = owns publicly traded stock (yes=1, 

no=0); 

real estate ownership = owns real estate (yes=1, no=0); 

employ = number of employees in the business (continuous); 

firm_age = age of the business (continuous); 

org = legal organization of the business (dummy variables for 

partnership, sole proprietorship, subchapter s corporation 

and regular corporation); 

sic = standard industrial classification of the business (dummy 

variables for agriculture, construction/manufacturing, 

wholesale/retail, and service/other); 

found = founding status of the business (dummy variables for 

inherited, bought/invested, and started); and 

HW = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership, employ, firm_age, org, sic, found) 

 where HW = high wealth (1=greater than $1 million in 1992$) 

HI50 = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership, employ, firm_age, org, sic, found) 

 where HI10 = high income (1=top 50% of income earners) 

 all other variables are the same as above. 

HW50 = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, stock 

ownership, real estate ownership, employ, firm_age, org, sic, found) 

 where HW10 = high wealth (1=top 50% of wealth holders) 

 all other variables are the same as above. 

Log income = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, 

stock ownership, real estate ownership, employ, firm_age, org, sic, found) 

Log wealth = f(MB, Y04, MB*Y04; age, race, gender, education, marital status, 

stock ownership, real estate ownership, employ, firm_age, org, sic, found)
16 

 Once again, the coefficient on the interaction term (MB*Y04) is assessed to 

determine whether households with multiple small businesses have fared better than other 

households owning small businesses from 1989 to 2004. This same analysis was 

conducted for 1992 to 2004 to test for the robustness of these results over time. The next 

section reports the results of this study. 

Results 

This section compares the weighted samples in 1989 and 2004, evaluates the 

probability of being classified as high income and/or high wealth, examines the number 

of business-owning households, compares the demographic and financial characteristics 

of single- and multiple-business-owning families, compares real mean and median 

income and wealth, compares the shares of total family income and wealth between 

business and non-business-owning families and across different types of business owners, 

and assesses the determinants of high-income and high-wealth families over the 15 years 

of this study (1989 through 2004). 

Univariate Analysis 

The sample weights were employed for the univariate- multivariate analyses in 

this study. The characteristics of the household and business were somewhat different in 

1989 and 2004 (Table 1). The household heads interviewed in 2004 were somewhat 

older, more educated, and less likely to be married than household heads in 1989. Real 

total household income and wealth were somewhat higher in 2004 than 1989; and 

households were more likely to have wage-and-salary income and less likely to have 

income from nontaxable investments, other interest income, dividends, TANF (or food 
17

Table 1 Comparison of Household and Business Characteristics, 1989 and 2004 (continued)

Characteristics 1989 2004

 

Net worth of household (dollars)

Less than 50,000 0.434 0.396 *

50,000-99,999 0.136 0.122

100,000-249,999 0.212 0.190 *

250,000-499,999 0.115 0.121

500,000-999,999 0.058 0.092 *

1,000,000-2,499,999 0.031 0.053 *

2,500,000-4,999,999 0.010 0.014

5,000,000-9,999,999 0.003 0.008 *

10,000,000 or more 0.002 0.005

 

Structure of income (shares of total household income))

Wages and salaries 0.622 0.661 *

Professional practice 0.038 0.033

Non-taxable investments 0.005 0.002 *

Other interest income 0.030 0.009 *

Dividends 0.009 0.006 *

Sale of stocks/bonds/r.estate 0.010 0.019

Net rent/trust/royalties 0.015 0.013

Unemployment/workmans compensation 0.005 0.004

Child support/alimony 0.008 0.008

TANF, food stamps, etc. 0.048 0.025 *

Social security/pensions 0.190 0.205

Other income 0.017 0.011 *

 

Structure of wealth (shares of total assets)

Stock mutual funds 0.002 0.014 *

Total directly-held mf 0.006 0.019 *

Stocks 0.019 0.019

Thrift-type plans 0.023 0.054 *

Other financial assets 0.021 0.011 *

Vehicles 0.183 0.193

Residential real estate 0.377 0.418 *

Business 0.041 0.034 *

Net equity in nonres r estate 0.022 0.015 *

Other nonfinancial 0.015 0.008 *

Other assets 0.290 0.215

 
18 

Table 1 Comparison of Household and Business Characteristics, 1989 and 2004 (continued)

Characteristics 1989 2004

 

Public Stock Held

Yes, holds public stock 0.199 0.205

No, does not hold public stock 0.801 0.795

Real estate holding (>$500,000)

Yes, holds real estate (>$500,000) 0.672 0.712 *

No, does not hold real estate (>$500,000) 0.328 0.288 *

Observations 3,143 4,519

Business Characteristics

Number of employees 6.846 14.201

Legal Organization

Sole propreitorship 0.532 0.501

Partnership 0.338 0.335

Sub-S corporation 0.055 0.099 *

Regular corporation 0.074 0.065

Industrial Classification

Industry, mining and agriculture 0.127 0.062 *

Industry, construction, manuf. 0.134 0.153

Industry, wholesale, retail 0.135 0.115

Industry, services and other 0.236 0.317 *

Not applicable (self-employed and owner only businesses) 0.369 0.353

 

Founding Status

Founding status, inherited 0.154 0.113 *

Founding status, bought, invested 0.411 0.497 *

Founding status, started 0.435 0.391

Self-employed

 Self-employed head and self-employed spouse 0.012 0.011

 Self-employed head, but no self-employed spouse 0.178 0.210

 Self-employed spouse, but no self-employed head 0.078 0.085
19

Table 1 Comparison of Household and Business Characteristics, 1989 and 2004 (continued)

Characteristics 1989 2004

Own and manage

 Owns and manages one business

 Self-employed spouse, yes 0.092 0.113

 Self-employed spouse, no 0.437 0.418

 Owns and manages more than one business

 Self-employed spouse, yes 0.035 0.041

 Self-employed spouse, no 0.068 0.074

Owns, but does not manage, businesses 0.099 0.047 *

Number of observations (all businesses) 1,100 1,660
20 

stamps), and other income in 2004 than in 1989. The structure of wealth differed for 

nearly every wealth category used in this study. Households were more likely to hold 

stock mutual funds, directly held mutual funds, thrift-type plans, and residential real 

estate in 2004 than in 1989; and less likely to hold other financial assets, business assets, 

net equity in nonresident real estate, and other nonfinancial assets in 2004 than in 1989. 

And finally, households were more likely to hold real estate in 2004 than in 1989. 

The businesses operated by members of the household were quite similar in 1989 

and 2004. Businesses were more likely to be organized as sub-chapter s corporations, less 

likely to be engaged in mining or agriculture, more likely to be engaged in a service 

business, and less likely to be inherited (and more likely to be bought) in 2004 than in 

1989. In addition, the business owners surveyed were less likely be owners only in 2004 

than in 1989. 

Families owning businesses are significantly less likely to be high income earners 

in 2004 than 1989 (Table 2). The wealth picture was somewhat different with households 

owning a business realizing somewhat (not statistically significant) lower probabilities of 

being high wealth and households without businesses realizing significantly higher 

probabilities of being high wealth in 2004 than in 1989 (Table 3). In 1989, small 

business-owning households were nearly two times more likely to be classified as high 

income (62.1 percent versus 33.0 percent) and over ten times more likely to be classified 

as high wealth (21.2 percent versus 1.9 percent) as households not owning a business. 

Multiple business owners had the highest probability of being classified as high income 

(82.1 percent) and high wealth (40.3 percent) of the small business owners. In 2004, a 

household owning any business had over a 55 percent chance of being classified as high 
21

Table 2 Probability of Being High Income, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

All respondents 0.369 0.346 0.221 0.258 0.306 0.289 -0.217 -0.057

No business ownership 0.330 0.304 0.190 0.225 0.260 0.248 -0.249 -0.056

Any business ownership 0.626 0.598 0.434 0.483 0.590 0.562 -0.102 -0.036

Small business 0.621 0.600 0.428 0.474 0.576 0.552 -0.110 -0.048

 single business only 0.581 0.577 0.383 0.468 0.547 0.513 -0.118 -0.064

 multiple businesses 0.821 0.690 0.560 0.497 0.681 0.734 -0.106 0.044

Note: Bolded and italicized proportions are statistically different at the 0.05 level of significance from

the 1989 proportions (reference group).

(proportions)

Table 3 Probability of Being High Wealth, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

All respondents 0.045 0.043 0.029 0.034 0.052 0.054 0.192 0.011

No business ownership 0.019 0.019 0.013 0.017 0.025 0.030 0.604 0.011

Any business ownership 0.222 0.183 0.136 0.148 0.224 0.212 -0.045 0.029

Small business 0.212 0.428 0.132 0.137 0.212 0.202 -0.047 -0.226

 single business only 0.175 0.115 0.090 0.094 0.166 0.145 -0.170 0.030

 multiple businesses 0.403 0.419 0.254 0.309 0.376 0.462 0.146 0.043

Note: Bolded and italicized proportions are statistically different at the 0.05 level of significance from

the 1989 proportions (reference group).

(proportions)
22 

income and over a 20 percent chance of being classified as high wealth. By 2004 the 

income gap between households with and without a business had widened, and the wealth 

gap had narrowed. Small business-owning households were now just over two times 

more likely to be classified as high income (55.2 percent versus 24.8 percent) and about 

seven times more likely to be classified as high wealth (20.2 percent versus 3.0 percent). 

Multiple business owners still appeared to be the most prosperous small business group, 

with nearly three-fourths of them classified as high income and nearly one-half classified 

as high wealth. 

 From 1989 to 2004 the likelihood of being high income declined for all groups 

and the likelihood of being high wealth decreased for business-owning households and 

increased for households without a business. The very lackluster performance of 

households owning a small business (or any business) in relation to a household with no 

business ownership would indicate that small business investment may have been less 

attractive between 1989 and 2004 than other investments, such as publicly traded stock or 

real estate. Interestingly, the percentage of households with small businesses remained 

remarkably constant at just over 13 percent from 1989 to 2004. 

 Table 4 compares mean household income for all households and those owning at 

least one business. Real mean income was significantly higher in 2004 than in 1989 for 

all household types, increasing by over 15 percent from $60,150 in 1989 to $69,629 in 

2004. Households not owning a business realized a real mean income increase of 16.1 

percent from 1989 to 2004. Small business real mean income increased from $139,040 to 

$142,559 (or 2.5 percent). Real mean income for small businesses owning just one 

business was unchanged from 1989 to 2004, even though it had fluctuated substantially 
23

Table 4 Mean Income, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

All respondents 60,150 51,354 55,164 61,622 73,763 69,629 0.158 0.356

No business ownership 48,282 42,905 46,491 51,041 58,432 56,046 0.161 0.306

Any business ownership 139,033 102,180 113,611 134,135 170,208 158,698 0.141 0.553

Small business 139,040 98,904 104,821 126,684 153,156 142,559 0.025 0.441

 single business only 113,816 85,786 87,222 99,820 129,247 113,507 -0.003 0.323

 multiple businesses 268,180 150,510 156,414 234,728 238,666 276,808 0.032 0.839

Note: Bolded and italicized means are statistically different at the 0.05 level of significance from the 1989 proportions

(reference group).

(2004 dollars)
24 

over this period of time. Multiple business-owning households realized a modest increase 

of just 3 percent in real mean income from 1989 to 2004. 

The wealth story is very similar (Table 5). Real mean wealth increased by over 60 

percent for the entire sample from 1989 to 2004. Households not owning a business 

realized a real mean wealth increase of just 60 percent. Small businesses realized a 

substantial increase in wealth from $944,705 to $1,445,385 (or 53 percent). Households 

with just one business realized a significantly less modest increase (35.2 percent). In 

1989 and 2004, multiple business-owning households had significantly higher real mean 

income and wealth than other small business owners. 

 Aggregate household income increased by just over 39 percent for all respondents 

between 1989 and 2004 (Table 6). The unit of observation is all families belonging to a 

specific group in each time period. Aggregate income may increase over time either 

because the group has become larger or because group members have earned more 

income. Families with small business ownership realized lower percentage changes in 

aggregate income than families without any business ownership (33.3 percent versus 41.0 

percent). Households owning multiple businesses realized the largest increase in 

aggregate income (40 percent) of any households owning businesses, while households 

owning only one business realized the smallest increase in aggregate income of any 

group (30 percent). 

 Families with no business also realized lower percentage changes in aggregate 

wealth than families with some small business ownership (Table 7). Small business 

owners did reasonably well by realizing increases in wealth of over 73 percent and nearly 

145 percent for single and multiple business owners, respectively. 
25

Table 5 Mean Wealth, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

All respondents 270,214 253,401 263,567 323,301 423,136 432,653 0.601 0.707

No business ownership 159,189 152,133 160,482 199,288 248,480 256,041 0.608 0.683

Any business ownership 1,008,183 862,568 958,234 1,173,124 1,521,849 1,590,803 0.578 0.844

Small business 944,705 817,403 886,827 1,055,701 1,385,002 1,445,412 0.530 0.768

 single business only 690,696 543,763 589,938 706,188 989,391 933,779 0.352 0.717

 multiple businesses 2,245,181 1,893,913 1,757,171 2,461,412 2,799,895 3,809,661 0.697 1.012

Note: Bolded and italicized means are statistically different at the 0.05 level of significance from the 1989 proportions

(reference group).

(2004 dollars)

Table 6 Aggregate Income for All Households, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

(x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.)

All respondents 5.6 4.9 5.5 6.3 7.9 7.8 0.393 0.592

No business ownership 3.9 3.5 4.0 4.6 5.4 5.5 0.410 0.571

Any business ownership 1.7 1.4 1.5 1.8 2.5 2.4 0.412 0.714

Small business 1.5 1.2 1.2 1.5 2.0 2.0 0.333 0.667

 single business only 1 0.9 0.8 1.0 1.3 1.3 0.300 0.444

 multiple businesses 0.5 0.4 0.5 0.6 0.7 0.7 0.400 0.750
26 

Table 7 Aggregate Wealth for All Households, 1989 to 2004

Changes Changes

Characteristics 1989 1992 1995 1998 2001 2004 89 to 04 92 to 04

(x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.) (x 1 t.)

All respondents 20.5 24.3 26.1 33.2 45.1 43.3 1.112 0.782

No business ownership 12.9 12.5 13.8 17.8 22.8 24.9 0.930 0.992

Any business ownership 12.3 11.8 12.3 15.3 22.2 23.6 0.919 1.000

Small business 9.9 10.3 10.3 12.7 18.3 19.9 1.010 0.932

 single business only 6.1 5.5 5.1 6.8 10.2 10.6 0.738 0.927

 multiple businesses 3.8 4.8 5.2 5.9 8.1 9.3 1.447 0.938
27

Multiple business owners are a critical part of the small business economic 

engine. In 1989 these multiple business households constituted about 16 percent of all 

small business-owning households; however, they earned more than 30 percent of total 

household income and held over 38 percent of the wealth of small business owners. In 

2004, they constituted nearly 18 percent of all small business-owning households, 

however they now earned nearly 35 percent of total household income and held 47 

percent of the wealth of small business-owning households. It appears that households 

owning multiple small businesses are becoming somewhat more significant contributors 

to aggregate household income and wealth. 

Multivariate Analysis 

Tables 8 (89-04) and 8 (92-04) examine the determinants of high income and high 

wealth for all households from 1989 to 2004 and 1992 to 2004, respectively. The six 

models reported in Table 8 (89-04) examine how households owning and managing small 

businesses fared in relation to other households from 1989 to 2004. Households have a 

lower probability of being high income; households have a lower probability of being in 

the top 50 percent of income and wealth; and households owning small businesses have 

higher log income and log wealth in 2004 than 1989. Households owning small 

businesses have a higher probability of being high income and high wealth; being in the 

top 50 percent of income and wealth; and have higher log income and log wealth than 

other households. The interaction term was statistically significant (or nearly significant) 

in all of the wealth regressions. The negative coefficient on the interaction term indicates 

that households owning small businesses in 2004 had a lower probability of being high 
28 

30 

wealth than other households in 1989 and 2004. In other words, households owning small 

businesses appear to have fared worse than other households over this period of time. The 

income regressions would suggest that households owning small businesses in 2004 fared 

about the same as other households from 1989 to 2004. 

A similar analysis using the data from 1992 to 2004 does not support all the 

results found in 1989 to 2004 (Table 8 (92-04)). While it appears that households have a 

lower probability of being high income and high wealth in 2004 than 1992, and 

households owning small businesses have a higher probability of being high income and 

high wealth than other households, the interaction term is not statistically significant. 

Therefore, these income and wealth regressions suggest that households owning small 

businesses in 2004 fared about the same as other households from 1992 to 2004. 

The control variables were quite interesting in this regression analysis. Highincome and -wealth households are more likely to be headed by an individual in the 

prime working years (35 to 54 years of age) who is male, well-educated and married. In 

addition, high income and wealth households are more likely to own public stock and real 

estate. 

Tables 9 (89-04) and 9 (92-04) utilized information on households with small 

business owners to assess how multiple and single business owners fared from 1989 to 

2004 and 1992 to 2004, respectively. On average, households had a lower probability of 

being high income and had higher log wealth in 2004 than in 1989. Households owning 

multiple businesses had a higher probability of being high income and high wealth than 

other households owning small businesses. These households owning multiple businesses 

held more wealth than other small businesses. The interaction term was insignificant in 

32 
33

all cases; therefore, households owning multiple small businesses fared about the same as 

other households owning small businesses from 1989 to 2004. 

Similar results were found in the analysis of the 1992 to 2004 information (Table 

9 (92-04)). These households owning small businesses earned higher income and held 

more wealth in 2004 than in 1992. Households owning multiple businesses had a higher 

probability of being high wealth than other households owning one small business, and 

these households earned higher income and held more wealth than households owning 

one business. The interaction term was insignificant in all cases; therefore, households 

owning multiple small businesses fared about the same as other households owning small 

businesses from 1992 to 2004. 

 

Conclusions 

 This study is primarily concerned with changes in income and wealth of families 

owning and not owning small businesses from the late 1980s to 2004. Who were the 

winners and losers? This study utilizes cross-sectional data to assess changes in income 

and wealth of all households and families owning different types of businesses from 1989 

to 2004. While panel data would be preferred, the unit of observation is all families 

belonging to a specific group in each time period. Clearly, the economic pie increased in 

size during this period of time for households owning small businesses. However, the 

most important questions are the following: Did households owning small businesses 

make more financial gains in terms of changes in income and wealth than households not 

owning a business; and did households owning multiple small business make more 

financial gains than households owning just one small business. 
34 

 Another study completed by Haynes and Ou (2005) suggests that households 

owning small businesses, especially those owning only one small business, appear to be 

making smaller contributions to total wealth in 2001 than in the early 1990s. This 

evidence has suggested that households owning only one small business seemed to be 

losing the race. They were making progress in increasing income and wealth, but they 

were making less progress than households not owning small businesses. This study 

provides further evidence that small business-owning households have made less 

progress than other households in increasing their wealth and very similar progress in 

increasing their income during the late 1980s, a time of robust business activity, and the 

early 2000s, a time of recovery for businesses. However, when in an examination of the 

data from 1992, a year of recovery, through 2004, another year of recovery, households 

owning small businesses appear to have progressed at about the same rate as other 

households. 

 The period of rapid economic expansion may have been a difficult time to start 

and nurture a new business and grow an existing small business venture for several 

reasons: 

(1) Labor costs increased. The unemployment rate fell from nearly 7 percent 

in 1991 to 4.0 percent in 2004, hence labor supplies tightened (Bureau of 

Labor Statistics, 2005.) In this type of labor market, small business owners 

were facing higher wages. In addition, small business owners may face 

substantial challenges finding and retaining high quality employees. 

(2) The opportunity cost of capital increased. While financial capital became 

less expensive to borrow over this period of time with the prime rate 
35

declining from just over 10 percent in 1990 to 4.0 percent in 2003, the 

value of the stock market (S&P 500) was increasing over 7 percent 

annually through 2003. Investors, particularly family and friends who may 

have been willing to invest in a small business venture, had less risky 

alternatives for their excess cash. In this type of financial market, small 

business owners may have been facing higher costs of financing and 

restricted access, especially for start-up financing. 

(3) Other employment opportunities increased the opportunity costs of 

prospective owners. If higher inflation-adjusted net income and wealth are 

the only important criteria considered by the business owner, many family 

members owning a business may have been better off working for 

someone else. In a market with relatively low unemployment in a growing 

economy, the opportunity cost of risking one’s family’s financial 

resources in a small business venture increases substantially. 

The competitive challenges of owning and managing a business are only 

compounded by higher labor costs and lower quality labor available in the market, less 

access to financial capital from family and friends, and the lure of reasonably good job 

opportunities working for someone else in a vibrant economy. 

Among households owning small businesses, multiple business owners seem to 

have realized the most substantial gains in income and wealth from 1989 to 2004. 

Multiple business owners had a higher probability of being classified as high income and 

high wealth, and they earned higher log wealth and lower log income than other 

households owning a small business. The interaction term was not statistically 
36 

significant; therefore, it appears that multiple business owners fared about the same as 

other small business owners from 1989 to 2004. This result was supported by the 1992 to 

2004 data. 

The results have some rather interesting public policy implications. If households 

owning small businesses are making similar financial progress as households not owning 

a business, then small business ownership may become a less attractive employment 

option because small business ownership is risky. Are additional incentives needed to 

encourage small business ownership? The SBA’s 7(a) Loan Guarantee Program offers 

loan guarantees for selected small business lenders and their borrowers. The program 

provides an excellent safety net for lenders, essentially guaranteeing 75–85 percent of the 

loan balance, but provides essentially no safety net for the borrower. Should the 7(a) 

Loan Guarantee Program be restructured to provide more direct support to borrowers and 

less direct support to lenders? 

Recent changes in bankruptcy laws have removed part of the safety net for small 

business borrowers by making it more difficult for those with credit card debt to liquidate 

their assets (Chapter 7 bankruptcy). With the emergence of more line-of-credit and 

credit-card-based lending by large banks to small businesses, this change in the 

bankruptcy law has had a significant impact on the strength of the safety net. Are other 

revisions in the bankruptcy law needed to provide a more secure safety net for small 

business owners (and their wealth)? 

What might be done to improve the financial performance of households owning 

a single small business, the situation of most small businesses in the United States? 

Households owning multiple small businesses outperform households owning a single 
37

small business for a host of reasons, including more experience, education, and financial 

capital. Revising rules to allow more angel and venture capital for these small businesses 

might provide more financial capital, however these types of businesses rarely have the 

growth potential desired by these investors. Small businesses are essentially relationship 

borrowers, hence they may be adversely affected by further concentration in commercial 

banking and less relationship lending at the local level. Further work is needed to 

determine if large banks are interested in servicing small businesses. 

Most importantly, small business owners as a group realized substantial gains in 

real income and wealth from 1989 to 2004 (and 1992 to 2004), and they ran a very good 

race with other households not owning small businesses. The relatively modest wealth 

gains of households owning at least one small business in relation to households not 

owning a business in this very prosperous economic time suggests that investments in 

businesses realized lower financial returns than investments in other assets. Even among 

small business owners, it appears that more of the growth in wealth was derived from 

ownership in publicly traded stocks and real estate than from the ownership of the small 

business. Given these relatively modest differences in the aggregate gains in wealth 

between households with and without small businesses, it should be no surprise that the 

number of households owning small businesses has remained quite stable. 

These results should concern small business investors. Small businesses are risky 

ventures, hence these owners reasonably expect higher returns on their investments in 

business assets than can be earned in other investments. If a risk premium isn’t earned by 

small business owners, other nonpecuniary benefits (such as being your own boss and 

having a passion for your vocation) of small business ownership become more important. 
38 

Further research utilizing high quality panel data is needed to compare the returns on 

business and other assets and assess the modest gains in income and wealth of small 

business-owning households during this time of robust economic growth. 

Limitations 

The time period chosen in this study was very important. When assessing the 

progress of small businesses from 1989, a peak year, to 2004, a mid-recovery year, it 

appears that households owning small businesses made less financial progress than other 

households. However, this result was not supported by data from 1992, an early recovery 

year, to 2004, a mid-recovery year. In this instance, households owning small businesses 

made very similar financial progress to other households. Between 1989 and 1992, 

Kennickell and Star-McCluer (1994) reported that real mean (and median) income and 

wealth declined. Households owning small businesses appeared to realize higher 

percentage losses in both mean income (29 percent for households with small businesses 

and 11 percent for households with no business ownership) and wealth (14 percent for 

households with small businesses and 4 percent for households with no business 

ownership) from 1989 to 1992 than other households. All households appear to have 

made very similar financial progress as they worked through the recovery phases in 1992 

and 2004. 

This study has essentially compared households owning one or more small 

businesses with other households. Appendix A expands the definition of small business 

to include self-employment, which didn’t appear to substantially change the results of 

this study. For further results using this new definition, please see Appendix 1. 
39

And finally, the inconsistency in these results might be caused by errors in the 

data. These data were gathered by two data collection agencies over 15 years. 
40 

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43

Appendix A Defining Family Entrepreneurship in the Survey of Consumer Finances

The Survey of Consumer Finances (SCF) is a valuable resource for researchers 

examining the financial success of households with small business owners/managers and 

self-employed individuals living in the household. The SCF is designed to supply 

detailed and reliable financial information, including income statements, balance sheets, 

use of financial services, pensions, labor force participation, and demographic 

characteristics of U.S. households. Previous studies using the SCF have utilized questions 

x3103 (Do you own or share ownership in any privately-held businesses, farms, 

professional practices, limited partnerships, or any other types of partnerships?) and 

x3104 (Do you have an active management role in any of these businesses?) to identify 

observations with business owners and managers residing in the household. This 

appendix expands the definition of small business owners/managers to include 

households with one or more self-employed individuals. Households with an 

owner/manager or self-employed spouse or partner are referred to here as 

“entrepreneurial families.” 

This more inclusive definition of business owner / manager increased the number 

of business-owning households by more than 36 percent for each year from 1989 through 

2004 (Table A.1). For instance, there were 14.8 million households (13.8 million 

owner/managers and 1 million owners only) with an owner/manager living in the 

household using the old definition in 2004. The new definition increases the number of 

households with owner/manager/self-employed spouse or partner residing in the 

household to 21.4 million households, a 44 percent increase. 
44 

Who are these business owners? The more traditional business owners are easy to 

identify because they acknowledge owning or sharing in the ownership of a business. 

This group of owners has been divided into two groups, owner-managers and owners 

only. Owner-managers own and manage at least one business. An owner-manager would 

be an individual who owns the business and provides all of the management, such as a 

grocery store owner who manages all of the resources of the firm. Owners only are 

investors in the business with no management responsibilities. Using the grocery store 

example, an owner would own the business, but not participate in managing the firm. The 

expanded definition includes respondents who indicate that they or their spouses/partners 

are self-employed or participating in a partnership (or non-publicly traded firm), but do 

not indicate that they are owners of a business. They are identified by responding in the 

affirmative to one of two questions: x4106 (Do you work for someone else, are you selfemployed, or what?) and x4706 (Does he/she work for someone else, are they selfemployed, or what?). The last case captures those individuals who view themselves as 

being self-employed or participating in a partnership (or non-publicly traded firm), but 

who are not owners of any business. These households typically have one individual with 

wage-and-salary or professional practice income; they have no business assets and are 

engaged in self-employment to supplement the household’s wage or salary income. These 

three types of business owners are defined as “entrepreneurial families.” 

 Entrepreneurial family households in the SCF can be defined by ownership, 

management, and self-employment. This taxonomy provides a more inclusive definition 

of a business owner and suggests a useful taxonomy for describing and analyzing 

business activity in the entrepreneurial family’s household. 
45

 The personal and demographic characteristics of these entrepreneurial family 

households are summarized in Table A.2 for each of the years 1989 through 2004. The 

businesses added to this definition of the entrepreneurial family are summarized in 

column 3 (self-employment). These respondents do not claim to own a business, but 

classified themselves as self-employed or engaged in a partnership (or non-publicly 

traded firm). When compared with households owning and managing a single business 

(column 5) in 2004, these self-employed respondents were much more likely to be 

minorities, were more likely not to have a high school diploma, were less likely to be 

married and were less likely to be high income or high wealth. In addition, they were 

more likely to have wage-and-salary income, were less likely to have professional 

practice income, and were more likely to own vehicles and residential real estate than the 

owner/manager business households. Please see Table A.2–1989 through Table A.2–

2001 for other comparisons. 

 Table A.3 uses the new definition of the entrepreneurial family household to 

examine the probability of the household being in the top 10 percent of household income 

or household wealth from 1989 through 2004. In 2004 the entrepreneurial family 

household had about a fourfold higher probability of being high income and high wealth 

than a household with no business ownership or self-employment. Households with at 

least one business owned and managed by a member of the household had a twofold 

higher probability of being high income and nearly threefold higher probability of being 

high wealth than households with no business ownership, but where at least one member 

was self-employed. Multiple business owners had the highest probability of being high 
46 

income (52.2 percent) and high wealth (64.1 percent) in this group of entrepreneurial 

family households. This pattern was consistent across the other years 1989 through 2001. 

 Table A.4 compares the progress of the entrepreneurial family household with 

households claiming no business ownership or self-employment from 1989 through 2004. 

Table 4 uses three definitions of high income and high wealth for comparison with the 

analysis in the main paper. In columns 2 through 5, high income is defined as earning 

$50,000 or more per year in 1992 dollars and high wealth is defined as holding $1 million 

in 1992 dollars. In columns 6 through 9, high income and wealth are defined as being in 

the top 10 percent of income earners and wealth holders, respectively. In columns 10 

through 13, the dependent variables are log income and log wealth. 

The log income regression analysis suggests that, on average, households earned 

higher real income in 2004 than in 1989, although the probability of high income 

regressions suggested that all households had a lower probability of being high income in 

2004 than 1989. In general, the regression analysis suggested that entrepreneurial family 

households earned higher income than other households. However, there was no evidence 

that entrepreneurial family households fared better than other households from 1989 

through 2004. 

The three regression analyses for wealth revealed a somewhat different story. The 

log wealth regression analysis suggests that all households earned higher real wealth in 

2004 than in 1989, although the probability of high wealth regressions suggested that all 

households had a lower probability of being high income in 2004 than in 1989. In 

addition, this regression analysis suggested that entrepreneurial family households earned 

higher income than other households. Most important, there was evidence that 
47

entrepreneurial family households fared worse from 1989 through 2004 than other 

households. This relatively robust result supports earlier work in the main body of this 

paper. 

The new definition of family business, which includes those households classified 

as self-employed and those owning a business, substantially increases the size of the 

“entrepreneurial family.” This initial analysis suggests that these households with selfemployment appear to have a higher probability of being high income and high wealth 

than households without any business activity. However, these households do not appear 

to be as financially successful as more traditional business-owning households. More 

work is warranted to more carefully define these entrepreneurial family households and 

assess their contribution to the share of income earned and wealth held. 
48 

Table A.1 Number of Business-Owning Households Represented in the Survey of Consumer Finances, 89 - 04

Characteristics 2004 2001 1998 1995 1992 1989

All Respondents 112.1 106.5 102.5 99.0 95.9 93.0

No ownership and no self-employed head or spouse 90.7 86.6 84.7 81.5 78.8 76.4

Business owning households plus self-employed 21.4 19.9 17.9 17.5 17.2 16.6

 No ownership, but self-employed head or spouse 6.6 5.2 4.8 4.8 3.5 4.5

 Own and manage 13.8 13.3 12.0 11.6 12.7 10.5

 Single 11.4 10.3 9.6 8.7 10.1 8.8

 Self-employed spouse 2.4 2.3 1.9 2.0 2.2 1.5

 Other 8.9 8.1 7.7 6.7 7.9 7.3

 Multiple 2.5 2.9 2.4 3.0 2.6 1.7

 Own, but do not manage 1.0 1.4 1.0 1.1 1.0 1.6

Number of Observations 4,519 4,442 4,305 4,299 3,906 3,143

(x million dollars)
49
50 
51
52 
53
54 
Table A.3 Probability of Being in the Top 10 Percent Household Income or Net Worth Category in 1995, 1998, 2001 and 2004 (continued)

Characteristics n High Income High Wealth n High Income High Wealth 

All respondents 4,305 0.100 0.100 4,442 0.100 0.100 No business ownership, no self-employed head or spouse 2,787 0.074 0.062 2,843 0.063 0.055 Business owning households plus self-employed 1,518 0.234 0.281 1,599 0.259 0.300  No business ownership, but self-employed head or spous 241 0.141 0.125 245 0.135 0.180 

 Own and manage any business 1,156 0.251 0.330 1,188 0.280 0.327  Single business owner 710 0.221 0.288 725 0.235 0.270  Single business, self-employed spouse 152 0.257 0.411 161 0.263 0.184  Single business, other 558 0.212 0.258 564 0.227 0.265  Multiple businesses 446 0.370 0.493 463 0.443 0.529 Own, but do not manage businesses 121 0.471 0.449 166 0.532 0.494 

1998 2001 
56 

Table a.4 Determinants of High Income and Wealth Among All Households, 1989 - 2004

Characteristics1 Parameter p-value Parameter p-value Parameter p-value Parameter p-value Parameter p-val

Intercept -3.8309 0.0001 -7.3023 0.0001 -6.0132 0.0001 -6.3309 0.0001 9.3473 0.0Age, 35 - 44 0.7063 0.0001 0.7358 0.0401 0.9199 0.0001 0.6760 0.0048 0.3253 0.0Age, 45 - 54 0.9977 0.0001 1.2436 0.0004 1.3213 0.0001 1.5827 0.0001 0.3272 0.0Age, 55 - 64 0.4952 0.0001 1.8078 0.0001 1.0439 0.0001 2.2254 0.0001 0.1342 0.0Age, 65 - 74 -0.5555 0.0001 2.1953 0.0001 0.3419 0.1060 2.4818 0.0001 -0.0119 0.7Age, 75 and over -0.9068 0.0001 2.3554 0.0001 -0.0755 0.7801 2.6257 0.0001 -0.0738 0.Race, minority -0.4733 0.0001 -0.7775 0.0022 -0.5093 0.0005 -1.0499 0.0001 -0.2519 0.0Gender, male 0.8413 0.0001 0.6330 0.0278 0.6478 0.0035 0.3536 0.0753 0.2298 0.0Education, high school diploma 0.9691 0.0001 -0.0423 0.8959 0.4416 0.0747 0.5666 0.0091 0.3491 0.0Education, some college 1.3828 0.0001 0.2717 0.4136 0.7002 0.0066 1.0484 0.0001 0.4680 0.0Education, college degree or more 2.3579 0.0001 1.1763 0.0001 2.0294 0.0001 1.5609 0.0001 0.8062 0.0Marital status, married 1.4590 0.0001 0.3467 0.0865 1.2149 0.0001 0.5290 0.0006 0.5854 0.0Public stock ownership 0.9608 0.0001 1.2620 0.0001 0.9965 0.0001 1.3465 0.0001 0.3613 0.0Own real estate (>$500,000) 1.7127 0.0001 3.1287 0.0001 2.0090 0.0001 3.6319 0.0001 0.7985 0.0Year dummy, 04 -0.9487 0.0001 -0.4484 0.0463 -0.6093 0.0001 -0.8521 0.0001 0.0283 0.2Own business/self-employed 0.0900 0.4498 2.1227 0.0001 0.6534 0.0001 1.7366 0.0001 0.1292 0.0Interaction: own business and 2004 0.2244 0.1495 -0.9248 0.0014 -0.0838 0.6730 -0.6401 0.0032 -0.0719 0.2Owns/manages multiple businessesInteraction: multiple and 2001-2 Log Likelihood/R-square 6,269 1,538 3,167 2,599 0McFadden R-square 0.35 0.50 0.36 0.48

7,662 7,662 7,662 7,662 7

All Respondents, 1989-2004

Logistic Regression Line

High Income Probability High Wealth Probability Log Income 

Highest 10% Income Highest 10% Wealth

Logistic Regression