The Contribution of Self-Employment to Income Inequality: A Decomposition Analysis of Inequality Measures by Sources and Sub-Groups for Italy, 1998-2002

The aim of the paper is to investigate the role of income from selfemployment in accounting for both the level and the change in the overall inequality among the Italian households from 1998 to 2002. The data come from the Survey of Household Income and Wealth (SHIW) conducted by the Bank of Italy. Through a decomposition analysis of Gini index by income source we find that in the more recent years the income from self-employment is the main disequalizing factor even if its effect is offset at the aggregate level by the forces played by the other sources. The Gini decomposition by population groups provides the evidence of widening gaps in the average income among the groups. Indeed a strong increase in the average income for managers and self-employed other than entrepreneurs and professionals has increased the segmentation of the different groups.