The American Dream has often included the idea of founding a successful small business. But when it comes to economic mobility, do entrepreneurs and small business owners actually get ahead?

Key findings

• Self-employment doesn’t help upward mobility or protect against downward mobility. The self-employed are actually more likely than wage-and-salary workers to move down the income ladder.
• Children of the self-employed are often more upwardly mobile than their parents, particularly if their fathers had low initial income.
• Very short-term entrepreneurs are more likely to be white, married, and college educated and to have no children.
• Workers who stay in wage-and-salary jobs are the most likely to stay in the same income class after five years.
• Workers who leave wage-and-salary jobs to become entrepreneurs are the most upwardly mobile and the least likely to stay in the lowest income class.
• Self-employment may play an equalizing role over a generation. The children of richer self-employed dads experience less upward mobility than children of rich wage-and-salary workers.

Key numbers

• Fourteen percent of the survey respondents reported self-employment and about 15 percent reported family-business ownership.
• Fourteen percent of self-employed respondents had not achieved a high school degree, whereas 9 percent of family-business owners had done so.
• Fifty-seven percent of survey respondents report having participated in self-employment or family-business ownership for as little as one year at any point from 1968 to 2009.
• Forty percent of entrepreneurs who became wage-and-salary workers and started at the bottom income class remained there five years later, compared with 56 percent of wage-and-salary workers turned entrepreneurs.
• Seventy-five percent of those who remained wage-and-salary workers stayed in the bottom income class, compared with 61 percent of those who remained entrepreneurs.

Policy recommendations

• Cost-benefit analyses of policies promoting entrepreneurship should take into account income volatility and changes in economic-mobility outcomes between parents and children.
• Financial literacy and budgeting training programs should be used to help prospective entrepreneurs make decisions that promote their own economic interest through.