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Small business in Australia 1995 - 2004AMP.NATSEM Income and Wealth Report Issue 11. July 2005There’s no business like small businessA1

ContentsForeword 11 Introduction 32 How important is small business? 43 A profile of small business operators 63.1 Age and gender 63.2 Country of birth 84 Do small business operators work longer hours? 94.1 Age and working hours 114.2 Does the age of the business affect working hours? 114.3 Do mothers running a business work longer hours? 125 Income and assets 145.1 Disposable income 145.2 Net wealth 156 Is small business prone to failure? 187 Conclusions 18References 19Technical notes 20

ForewordOf all the private sector businesses in Australia, 96 per centare small businesses with fewer than 20 employees andaround two in every five private sector workers are employedin a small business. Small business is the engine room of awell-tuned economy.In this edition of the AMP.NATSEM Income and WealthReport, we focus on small business and examine the large,but understated, contribution it makes to the economy andour society.Profile of an Australian small businessOver the last 20 years, small businesses have steadilyincreased their share of the total private sectoremployment pie.The fastest growth among small business workers waswith sole traders. The proportion of small businesseswith no employees apart from the owner has grown by8 percentage points since 1995 and much of this growthis among home-based businesses. In 2004, there werearound 856,000 home-based businesses in Australia,up by 9 per cent on the previous year.Older Australians are more likely to try their hand at smallbusiness. In 2004, around one-third of small businessowners were aged 50 or more, while only one-fifth ofemployees in medium or larger businesses were aged50 or more.The perception that more women are starting smallbusinesses than men is a myth. The number of male smallbusiness operators increased by one-third between 1995and 2004, while the number of small business operatorswho were women increased by just one-sixth.Some 1.74 million new jobs were created in the Australianeconomy between 1995 and 2004 – 928,000 for femalesand 816,000 for males. Of these, around one in threemales set up a small business, while only one in 14 femaleswere small business operators.The image of small business operators putting in all of theirwaking hours on their business has changed over the last10 years. In 1995, 44.4 per cent of males and 36.1 percent of females worked more than 55 hours a week intheir small businesses. By 2004, the proportion of malesworking these kinds of hours had dropped to 34.1 per centand the proportion of females had fallen to 25.7 per cent.Small business operators generally earn less thanemployees but they have more personal wealth, even afterexcluding the value of their business. This is not surprisinggiven that, on average, small business operators are olderthan employees and so have gathered more assets.In almost every age group, female small business operatorshave more personal wealth than any other group – malesmall business operators and male and female employeesalike. They have more in cash deposits, shares and equityin their homes and other property investments.What they don’t have is superannuation: across the board,small business operators have lower superannuationbalances than employees. Small business operators areoften reliant on the value of their businesses to supplementtheir retirement savings, which may be a risky strategyfor the increasing number of sole traders whose ownknowledge and skills often form their business’s chiefassets.1

What does this mean for Australia?Small business is in the engine room of the Australianeconomy – an economy that has been motoring for thepast decade.The number of small businesses with no employees isincreasing rapidly, as is the proportion of small businessesthat are run from home. There is no clear data on what isbehind this shift. It could be in response to increaseddemand for very specific products and services from homebasedbusinesses, or it could be because of increasingregulation and associated on-costs associated with takingon employees.Whatever the motivation, the proportion of smallbusinesses with no employees increased by 8 per centbetween 1995 and 2004, while the proportion of smallbusinesses employing between one and four employeesreduced by 1 per cent and the proportion that employedbetween five and 19 employees reduced by 7 per cent.So, while small business operators will continue to fuel theeconomy and their numbers will keep on expanding, theirongoing contribution to employment growth (for peopleother than owner-operators) will be driven by a shrinkingproportion of larger small businesses.Also, the increasing average age of small businessoperators has implications in terms of the overall debatearound the ageing workforce. For many older smallbusiness owners, the decisions about retirement will be amatter of whether they can, not when they can. The lackof retirement savings among small business operatorsunderlines this.Small business operators traditionally rely on the valuewithin their businesses to supplement their retirementsavings. The Government recognises this and provides anumber of measures, like Capital Gains Tax rollover reliefand retirement exemptions.However, the shortage of superannuation savings amongsmall business operators suggests they may be overlyreliant on this strategy. This is particularly true for thosesole traders whose skills and knowledge are their business’schief assets. Once the sole trader retires, the value of thebusiness could diminish significantly.Relying on one strategy is always risky. Small businessoperators would do well to diversify their retirement plansby supplementing their business investment with somesuperannuation savings.For unincorporated sole traders and partnerships, makingthe tax benefits available around superannuation asattractive as those available to employees might encouragemore interest from these types of small business operator.Most employees can enjoy the benefits of “salarysacrificing”, where an employee “sacrifices” income inreturn for increased contributions to superannuation fromtheir employer. The net effect is that an employee can havesuper contributions made from pre-tax income up to theirage-based contribution limits. The only taxation thatapplies initially is the 15 per cent contribution tax.On the other hand, small business people who operatethrough partnership or sole trader business structures areentitled to a 100 per cent tax deduction on the first $5,000they contribute to super, and then only a 75 per cent taxdeduction on the remaining contributions up to their agebasedcontribution limits.As many small businesses are unincorporated this unlikelyto encourage people starting out down the small businessroute to diversify their retirement savings strategy. The riskis that, as more and more older people try their hand atbeing self-reliant in a small business, fewer of them mightend up self-reliant in retirement.And that would be a pity, because anything thatdiscourages small business from succeeding might insteaddilute some of the zip that ensures our motoring economyruns on premium fuel, rather than on standard unleaded.Craig DunnManaging Director, AMP Financial ServicesJuly 2005This is one of a series of AMP.NATSEM reports. AMP publishesthese reports as a service to the community and to our customers,who make up one in 4 working Australians. The objective of thesereports is to make our readers aware of current issues and trends,and how these could affect them.2

1. IntroductionFew small businesses in Australia have the high profile of larger corporations, however, small businesses are no less importantto the economy. Take the retail sector for example. Every day, almost all of us interact with retailers to satisfy our needs.Small businesses make up 95 per cent of the retail sector and provide 41 per cent of the employment in the retail trade(ABS, 2002). Similar proportions exist in almost all sectors. Thus, small businesses not only provide the goods and serviceswe need, they also provide a livelihood to many.In this issue of the AMP.NATSEM Income and Wealth Report, we examine the small business sector and its operators.We compare them with other workers and examine how the sector has changed over the last decade or so.The main data sources for this report are specially commissioned data from the Australian Bureau of Statistics (ABS) fromtheir Characteristics of Small Business and Labour Force surveys, and the Household, Income and Labour Dynamics inAustralia (HILDA) survey conducted by the Melbourne Institute for the Department of Family and Community Services(see Technical notes for more details).3

2 in every 5 private sector employeeswork for a small business.2. How important is small business?Small business represents a large part of the Australianeconomy and Australian jobs. A small business is commonlydefined as a non-agricultural business with less than 20employees. In June 2004 there were 1.27 million of thesesmall businesses in Australia (ABS, 2005). This number hasdoubled in the past 2 decades (up from 620,000 in1983-84).In comparison, there were an estimated 51,000 mediumand large businesses in Australia in June 2004. This meansthat small businesses currently make up 96 per cent of allprivate sector businesses – a proportion that has remainedrelatively stable over the past 2 decades.In 2000-01, 2.27 million people were employees of a smallbusiness, compared with 3.64 million who were employeesof a larger business. This means that around 2 in every 5employees work for a small business. Small business hasincreased its share of the private sector employment pieslightly over the past 2 decades, rising from 34 per cent ofall private sector employees in 1983-84 to 38 per cent by2000-01 (ABS, 2002).During the strong economic growth of the past decade,small business has been one of the engines of employmentgrowth. Between 1996-97 and 2000-01, an additional366,000 people either worked in their own unincorporatedbusiness or were employees of a small business. In contrast,only an additional 268,000 jobs were created in mediumand big business.Of the estimated 1.27 million small businesses in 2004,56 per cent have no employees, that is, only the operatorsworked in the business. Another third have between oneto 4 employees, while 11 per cent had 5 to 19 employees(Figure 1). Since 1995, the proportion of small businesseswith no employees has been growing sharply (up from 48per cent in 1995) while those with 5-19 employees hasbeen decreasing (down from 18 per cent) (ABS, 2005).The number of small businesses that are run either entirelyor largely from home is growing at a phenomenal rate.In June 2004, 856,000 small businesses were home-based.This was a 9 per cent increase on the previous year(785,000) and represents almost two-thirds of smallbusiness operators. Making clever use of new technologiesand responding to the changing demands of largebusinesses, the growth in home-based small businesses isexpected to continue, given the greater flexibility, reducedoperating costs and improved lifestyle balance associatedwith running a home-based business.4

Figure 1. Percentage of employing and non-employing small businesses, 2004(and percentage point change since 1995)5-19 employees11%(down 7%)1-4 employees33%(down 1%)No employees56%(up 8%)Data source: ABS Cat. No. 8127.0, 2005In total, there were 1.66 million operators of the 1.27 million small businesses in Australia in June 2004. Almost threequarters(73 per cent) of these small businesses had only one operator and a further 25 per cent had 2 operators (ABS,2005). For the overwhelming majority of small business operators, their small business was their main job. However, asshown in Table 1, for about 6 per cent of males and 12 per cent of females, their small business was a sideline toanother job.Table 1. Number of small business operators, 2004Male Female All PersonsAll small business operators 1 1,131,000 (68%) 529,000 (32%) 1,660,000Operators main job is small business 2 1,068,162 (70%) 465,688 (30%) 1,533,850“Main-job” operators as a proportion of all operators 94% 88% 92%Source: 1 Published data from ABS Cat. No. 8127.0, 2005 and 2 unpublished commissioned data from ABS.5

3. A profile of small business operatorsOver the following sections we compare small businessoperators whose small business is their main job with thosewho are currently employees (that is, they work in abusiness owned by someone else).3.1 Age and genderTable 2 shows that the predominant age group in both1995 and 2004 was 30-49 years for both small businessoperators and employees. While this age group dominatesboth types of employment, small business has substantiallyhigher concentrations in this age group, with over half ofsmall business men and women being aged 30-49 years(54 per cent for males and 60 per cent for females in2004). In contrast, employees aged 30-49 yearsrepresented only 47 per cent of all employees in 2004.Small business operators have an older age profile thanemployees. In 2004, only 9 per cent of small businessoperators were less than 30 years old, compared withabout 33 per cent of employees. In addition, 36 per cent ofmale small business operators were aged 50 or more, whileonly 21 per cent of current male employees were 50 yearsand over. For females the discrepancy is equally marked,with about 33 per cent of female small business operatorsbeing aged 50 years and over, compared with only 20 percent of female employees.Overall, younger Australians are much less likely to try theirhand at small business than to become employees – whileAustralians aged 50 years and over are more likely to takethe small business plunge. These patterns produce asignificantly older age profile for small business operatorsthan for employees.6

Younger Australians are much less likely to trytheir hand at small business while Australiansaged 50 years and over are more likely totake the small business plunge.Table 2. Age and gender of small business operators and employees, 1995 and 2004Small Business OperatorsEmployees1995 2004 1995 2004AGE Male Female Persons Male Female Persons Male Female Persons Male Female Persons

Figure 2. Number of new jobs created between 1995 and 2004, by gender and job typeFemales86266EmployeesSmall business operatorsMales550266100 200 300 400 500 600 700 800 900 1,000Number of new jobs ('000)Note: “New jobs” is defined here as the sum of the increase in the number of small business operators plus the increase in the number of employees.Data source: NATSEM calculations based on unpublished commissioned ABS data.3.2 Country of birthThose born overseas appear slightly more likely to embrace small business opportunities than those who are Australianborn.Figure 3 shows that, in 2004, 31 per cent of small business operators were overseas-born, compared with 25 per centof employees. This gap has increased since 1995, when the corresponding figures were 28 per cent and 24 per cent.Figure 3. Country of birth of small business operators and employees, 2004Small Business OperatorsOther 7%Asia 9%Other 6%Asia 8%EmployeesEurope 15%Europe 11%Australia 69%Australia 75%Data source: NATSEM calculations based on unpublished commissioned ABS data.Between 1995 and 2004, the proportion of European-born small business operators dropped almost 4 percentage points,the proportion of Asian-born small business operators increased 4 percentage points, and the proportion of those born inother countries increased by about 2 percentage points. Among employees, there was a 3 percentage point drop in thosewho were European-born, a 3 percentage point rise in those who were Asian-born, and a one percentage point rise inthose who were born in other countries.8

Female full-time small business operators areabout 6 times as likely as female full-timeemployees to work 55 hours a week or more.4. Do small business operators worklonger hours?There is a widespread perception that in recent years we’veall been working harder and longer. The report somewhatsupports this view, with the proportion of all small businessoperators working 35 hours or more a week increasingmarginally from 69 per cent in 1995 to 71 per cent in 2004,and the comparable proportion of employees working fulltimeincreasing from 65 to 69 per cent. While there was amarginal increase in the proportion of male small businessoperators working full-time, and no real change for femalesmall business operators, the most pronounced change wasin the proportion of male employees working full-time,which increased from 77 per cent in 1995 to almost 84 percent in 2004.But the real surprise is that while overall average hours haveincreased, the proportion working very long hours (55 hoursor more per week) has declined – for both small businessoperators and employees. In 2004, 28 per cent of male smallbusiness operators were working 55 or more hours per week,whereas a decade earlier the proportion was 37 per cent(Table 3). For male employees, there was also a drop in theproportion working very long hours – from 12.5 per cent in1995 to 10 per cent in 2004. Similar drops in the proportionof women working 55 hours or more each week can beseen in Table 3 – both small business and employees.The much larger proportions of small business operatorsworking 55 hours or more when compared with theiremployee counterparts may be biased as the two groupshave different and changing distributions of part and fulltimeworkers. To counter this, Figure 4 examines the issuefrom another perspective, showing the proportion of allfull-time workers who worked 55 hours a week or more.The figure shows that the proportion of male full-time smallbusiness operators working 55 hours a week or more hasdropped from about 44 per cent in 1995 to 34 per cent in2004, and the proportion of female full-time small businessoperators working similarly long hours has dropped from36 to about 26 per cent during the same period.Among employees, the drop in the proportion of full-timersworking 55 hours a week or more has been equallymarked, down from about 16 to 12 per cent for maleemployees and 6 to 4 per cent for female employees.Thus, while more Australians are now working full-timethan in 1995, the proportion putting in 55 hours or morea week has declined.Despite this, it remains clear that the average full-time smallbusiness owner – whether through choice or necessity –puts in much longer hours than the average full-timeemployee. In 2004, male full-time small business operatorswere still about 3 times as likely as male full-time employeesto work 55 hours a week or more. For women, the discrepancywas even larger. Female full-time small business operatorswere about 6 times more likely than female full-timeemployees to be working 55 hours or more each week.9

Figure 4. Proportion of all full-time small business operators and employees working 55 or more hours per week,by gender, 1995 and 2004% working 55+ hours a wek604020044.436.134.125.716.311.66.34.0Male Female Male Female Male Female Male Female1995 2004 1995 2004Small business operatorsEmployeesData source: NATSEM calculations based on unpublished commissioned ABS data.What about part-time workers? Table 3 shows that in 2004, small business has a larger proportion of women working 0-20hours per week (42 per cent) when compared to the employee group (27 per cent). However, the proportion working suchshort hours has decreased for both employment types, down from 44 per cent and 32 per cent in 1995. In contrast, therehas been an increase in the proportion of women working 21 to 34 hours a week, irrespective of whether they’re smallbusiness owners or employees – perhaps reflecting the on-going juggling act between work and family.Table 3. Hours worked and gender of small business operators and employees, 1995 and 2004Small Business OperatorEmployee1995 2004 19952004Hours perweekMaleFemale Male Female Male Female Male Female% % % % % % % %0-20 11.2 44.1 8.7 42.0 13.7 31.5 10.7 27.421-34 6.6 13.1 7.9 15.7 9.4 18.7 5.8 20.035-54 45.7 27.3 54.9 31.5 64.4 46.6 73.8 50.555+ 36.5 15.4 28.4 10.9 12.5 3.1 9.7 2.1All 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Source: NATSEM calculations on unpublished commissioned ABS data10

4.1 Age and working hoursIn Figure 5, the proportions of people in 2004 working differing numbers of hours are shown for different age groups.The high proportions working 55 hours or more in small business, as discussed previously, is evident. Also significant is thesmall proportion working part-time (that is, for 0-19 hours or 20-34 hours) in small business, at all ages except 55 years andolder. It seems that small business requires more than a part-time involvement. One-quarter of small business operatorsaged 30 to 49 years are putting in 55 hours a week or more, compared with only 8 per cent of employees of the same age.Even at ages 55 and above, when small business might conceivably be seen by some as a relaxed alternative to earlyretirement, about one-fifth of small business operators are still devoting 55 hours a week or more to their business.Figure 5. Proportions of small business operators and employees by working hours per week, 20040-19 hr (PT) 20-34 hr (PT) 35-54 hr (FT) 55+ hr (FT)100801826 22 193 8 8 6Persons (%)604020058426066 665547 5619 141813 131316 1721 2413 14 1011 169

For female small business operators, theproportion working 35 to 54 hours a weekplummets from 35 to 24 per cent when thereis a child aged less than 15 years in the family.4.2 Does the age of the business affect working hours?Do small business operators put in more hours if they have a younger business?Surprisingly, Figures 6 and 7 show that hours worked per week by small business operators don’t seem to vary much withthe age of the business. Around 60 per cent of female small business operators and 16 per cent of male small businessoperators work part-time in their business, no matter how long their business has been running (Figure 6).At the other end of the spectrum (those working 51 or more hours a week in their business), the proportion working thesehours is reasonably steady for men at around 30 per cent, and between 10-14 per cent for women (Figure 7).Taken together, there seems little evidence to suggest that the number of hours worked varies with the age of the business.Figure 6. Proportion of small business operators working 0-34 hours per week by age of businessPersons working 0-34 hrs/week (%)60402005856 57601916 16 16

4.3 Do mothers running a business work longer hours?Do mothers running their own business work longer hours compared with mothers working as employees? Table 4 providessome insight into this question.In 2004, 43 per cent of women operating their own small business with at least one dependent child aged 0-14 wereworking 0-20 hours per week. For employee mothers, the comparable proportion was 30 per cent in the 0-20 hrs range –perhaps suggesting that mothers find it easier to combine part-time small businesses with motherhood.Generally, Table 4 suggests that employee mothers work longer hours on average than mothers who are small businessoperators, with 38 per cent of female employees working for 35 or more per week, compared with 33 per cent of femalesmall business operators.The other notable feature of Table 4 is the pronounced impact of children on women’s labour force participation (an issuewe discussed in our earlier AMP.NATSEM Income and Wealth Report No 6. Generation Xcluded). For female small businessoperators, the proportion working 35 to 54 hours a week plummets from 35 to 24 per cent when there is a child aged lessthan 15 years in the family. The same pattern is even more apparent for female employees.Only a very small proportion of employee mothers with children aged 0-14 years worked very long hours of 55 hours aweek or more (less than 2 per cent). However, about one in every 12 small business mothers was working 55 hours a weekor more. Another notable feature is that the proportion of small business women without children working these very longhours dropped significantly in the past decade – but this decline was barely apparent for small business mothers.Table 4. Female small business operators and employees with and without at least one childaged 0-14 years by hours worked, 1995 and 2004Female Small Business OperatorFemale Employee1995 2004 1995 2004Hours perweekNo child1+child0-14No child1+child0-14No child1+child0-14No child1+child0-14% % % % % % % %0-20 hrs/week 32.3 50.6 30.9 42.6 24.6 38.1 21.1 30.321-34 hrs/week 17.9 19.8 22.6 24.8 19.5 27.6 22.5 31.835-54 hrs/week 31.3 20.0 34.6 24.1 52.4 32.1 54.1 36.255+ hrs/week 18.6 9.6 11.9 8.5 3.5 2.2 2.2 1.7Source: NATSEM calculations on unpublished ABS data13

5. Income and assetsIn this section the income and assets of small business operators and employees are compared. The data used for thisanalysis are from the June 2002 HILDA Survey.5.1 Disposable incomeThe average disposable income (after payment of income tax) of small business operators in 2002 was $32,500, while theaverage employee disposable income was $29,700. However, averages can be quite deceiving. Firstly, we’ve seen that thereare 2 small business male operators for every woman – and men generally have higher incomes than women. So acomparison based on gender seems more appropriate. Secondly, income generally increases with experience and age, sothe differences in the age profile analysed in Section 3 will impact on the average.Figure 8 shows that male small business operators generally have less disposable income than their employee counterpartswithin most age groups – yet the different age profiles result in the overall average for male small business operators of$36,000 against an average for male employees of $34,700. The mixed results by age for women produces an overallaverage of $25,300 for small business operators and $24,000 for employees.Figure 8. Estimated disposable income of small business operators and employees by age and gender, 2002MalesFemales5050Disposable Income ($'000 p.a.)40302010SB OperatorEmployeeDisposable Income ($'000 p.a.)40302010SB OperatorEmployee0

Small business operators have higherper person net wealth than employees.5.2 Net wealthThe net wealth values shown in the following tables andfigures are the sum of the current value of:• cash deposits• shares• superannuation• equity in the family home (current value lessmortgages)• equity in other properties, and• equity in the business (see the Technical notesfor the definition).From this total value, credit card and other personal debtshave been subtracted to give a final net wealth figure. Asit’s often not possible to distinguish ownership of an assetwithin a household, if a person was a member of a couplehousehold then each member was allocated half the overallvalue of that asset. For example, each member of a couplewas allocated half the equity in a family home. The onlyexception to this was superannuation, which could beassigned individually.In the data presented, employees are shown to havebusiness equity. There are 2 reasons for this. Firstly, someemployees may legitimately also be small businessoperators. Secondly, the method we’ve used to calculatepersonal wealth (deriving it from household wealth) meansthat it’s possible that some “blurring” has occurred. Forexample, if one member of a couple is an employee andthe other is a small business operator, we have assignedhalf of the value of the business to both members.Table 5 shows that within each gender, small businessoperators have higher per person net wealth thanemployees. Male small business operators have an overallaverage net wealth of $236,600, compared with $173,200for male employees. For females, the respective values are$259,300 and $149,300.If we exclude business equity, the personal wealth of smallbusiness operators of about $190,000 is still higher thanthat of male employees, at $169,000. For women, thedifference is even greater. Female small business operatorshave a personal (non-business) wealth of $216,000,compared with only $142,000 for female employees.15

Table 5. Wealth per person by gender, asset type and employment type, 2002AgegroupCashdepositsShares Super HomeequityOther propequityBusinessequityCreditcarddebtOtherdebtNetwealth$’000s $’000s $’000s $’000s $’000s $’000s $’000s $’000s $’000sMales

Figure 9. Wealth per person by gender, age and employment type, 2002MalesFemales500500Net Wealth ($'000 p.a.)400300200100SB OperatorEmployeeNet Wealth ($'000 p.a.)400300200100SB OperatorEmployee0

6. Is small business prone to failure?It’s often stated that “a third of small businesses fail in theirfirst year”, or that “half of all small businesses are gone in2 years”. But is this supported by the evidence?In a recent article for the Australian Financial Review,Professor Michael Schaper, ACT Small BusinessCommissioner, reported that the “exit” rate of a smallbusiness was likely to be 8 per cent, compared with 5 percent for large businesses. The “exit” rate measures howmany businesses cease to exist. Given the size of the smallbusiness sector, an 8 per cent “exit” rate would equate toover 100,000 businesses and 285,000 people. This is wellunder the 33 per cent often quoted.18

7. ConclusionsThe number of small business operators has increased byabout one-fifth during the 9 years to June 2004, with smallbusinesses now making up about 96 per cent of allbusinesses in Australia.Those born overseas appear more likely to take the plungeinto small business than those born in Australia, with thegap between the 2 groups having increased since 1995.Small business operators are twice as likely to be male asfemale – a much greater divide than exists for employees,where the proportion of male and female employees isevenly balanced.Full-time small business operators are about 4 times aslikely as full-time employees to work 55 hours or more aweek – with female full-time small business operatorsbeing about 6 times as likely as female full-time employeesto work this number of hours. However, while there is thislarge gap between small business people and employees,the proportion of small business operators working suchlong hours has actually declined over the past decade.Instead, while Australians across the board tend to beworking longer today, the significant increases for bothemployees and small business operators have been in theproportion working 35 to 54 hours a week.Interestingly, the study does not suggest any clear relationshipbetween the age of a small business and the tendency forthe small business operator to work very long hours.Looking just at women, the study again revealed the markedeffects of having children on women’s labour forceparticipation, with a sharp drop in the proportion of womenwith children working full-time compared with womenwithout children. This drop was apparent for both smallbusiness operators and employees. However, a significantlyhigher proportion of all small business mothers were workingless than 20 hours a week, compared to employee mothers– perhaps suggesting that being a part-time small businessoperator can provide a more flexible alternative for somemothers than being a part-time employee.The after-tax incomes of small business men were generallymarginally lower than those of male employees of the sameage – but the pattern for small business women comparedwith female employees of the same age fluctuated. Evenafter accounting for age, small business operators generallyhad higher net wealth than employees. This remained trueeven if the value of business assets was taken out of thepicture. However, small business operators had much lowersuperannuation than employees of the same age.19

ReferencesAustralian Bureau of Statistics 2005, Characteristics of Small Business 2004, Cat. No. 8127.0, Canberra.Australian Bureau of Statistics 2004, Labour Force, Australia, Cat. No. 6202.0, Canberra.Australian Bureau of Statistics 2002, Small Business in Australia 2001, Cat.No. 1321.0, Canberra.Productivity Commission, 2005, Economic Implications of an Ageing Australia, AGPS.Schaper, M. 24 May 2005, “Small firms need far less red tape, not lots more aid”. The Australian Financial Review.20

Technical notesThe HILDA SurveyThe Household, Income and Labour Dynamics in Australia(or HILDA) survey is a household-based panel surveyconducted by the Melbourne Institute of Applied Economicand Social Research at the University of Melbourne for theDepartment of Family and Community Services. The surveytracks all members of an initial sample of households overan indefinite life. The HILDA survey collects data in 3 mainareas: economic and subjective wellbeing, labour marketdynamics and family dynamics. This report uses the secondwave, which was conducted in early 2002. More details areavailable from businessIn this report, a small business is a non-agriculturalcompany employing less than 20 people. This is thestandard definition used by the Australian Bureau ofStatistics (ABS, 2002). This employment size-baseddefinition does not suit, and therefore does not apply to,the agriculture sector because many farm businesses havelarge-scale operations but employ few or no permanentemployees. They typically employ seasonal and itinerantworkers for their short-term needs.Small business operatorA small business operator in this report refers to peoplewho own and run their small businesses, which may beincorporated or unincorporated (ABS, 2005). A smallbusiness operator could be a:• sole trader• partner of a partnership, or• working director.EmployeeAn employee is a person who works for an employer andreceives remuneration in wages or salary. It does notinclude the working director who runs his or her ownincorporated business. This person is included among smallbusiness operators (ABS, 2005).Employer and own account workerA self-employed person running his or her ownunincorporated business may or may not hire an employee.If he or she does not hire, the person is an “own account”worker. Otherwise, the person is an employer (ABS, 2002).Data for small business operators and foremployeesAll data for small business operators, except those relatedto income and wealth, are NATSEM-commissioned,unpublished data for June 1995 and June 2004, sourcedfrom the Australian Bureau of Statistics. The 2004 smallbusiness operator data are based on the Characteristics ofSmall Business 2004 survey, released in April 2005, and the1995 data is based on the same survey in 1995. TheCharacteristics of Small Business survey is a supplementarytopic in the monthly Labour Force Survey.The 2004 employee data is based on the Labour ForceSurvey for June 2004 and the 1995 data based on thesame survey for June 1995. Employee data relates topersons employed in all businesses large and small, and inall sectors including agriculture.The tables and figures relating to income and wealth arebased on the HILDA survey. The people included wereemployed, aged less than 70 years and living in one of thefollowing household types – member ofa couple household (with or without dependent children), alone parent household or a singleperson household.Any person who was employed as a farmer or farmmanager was also removed. Persons who indicated theywere self-employed or employers and who worked in acompany with less than 20 employees were compared withpeople who indicated they were employees (regardless ofcompany size).Business EquityIn this report, business equity is calculated on a householdbasis and then divided by the number of adults in thehousehold to give a personal level of business equity.Equity is defined as value of the business less businessdebt. The value of the business includes the gross value ofany property, buildings, vehicles, machinery and deposits inbank accounts owned by the business. Only the proportionowned by household members is considered in thecalculation. Business debt is the debt owed by thehousehold on the business. It excludes debts owed byindividuals outside the household.21

AMP.NATSEM Income and Wealth Reports:• Money, money, money, – is this a rich man’s world?• Trends in taxable income (February 2002)• Live long and prosper? – The income and wealth of those about to retire (May 2002)• All they need is love…and about $450,000 – The costs of children in Australiatoday (October 2002)• Does your wealth depend on good health? – Health and income in Australia(March 2003)• You can’t rely on the old folks’ money – Wealth and Inheritance (June 2003)• Generation Xcluded – Income and wealth of Generation X (November 2003)• The lump sum: Here today, gone tomorrow – Income, superannuation and debtpre and post retirement (March 2004)• Household debt in Australia – walking the tightrope (November 2004)• Financial impact of divorce in Australia (April 2005)• Small business in Australia 1995 - 2004 (July 2005)All the above reports are available from report was written by Shih-Foong Chin, Simon Kelly and Ann Harding from the National Centre for Social and Economic Modelling Pty Limited('NATSEM'), and published by AMP. This report contains general information only and although the information was obtained from sources considered tobe reliable, the authors, NATSEM and AMP do not guarantee that it is accurate or complete. Therefore, readers should not rely upon this information forany purpose including when making any investment decision. Except where liability under any statute cannot be excluded, NATSEM, AMP and their advisers,employees and officers do not accept any liability (where under contract, tort or otherwise) for any resulting loss or damage suffered by the reader or byany other person.NS1751 07/05

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