Income and consumption inequality trends: A comparative analysis between paid employees and the self-employed

This paper aims to analyze trends in income and consumption inequality for paid and self-employed households and examine to what extent changes in aggregate consumption and income inequality can be explained by changes in their permanent and transitory components over time using data from the Italian Survey of Household Wealth (SHIW) covering the period 1989-2016. The results obtained from the Generalized Method of Moments (GMM) analysis reveal differences in consumption and income inequality, as well as their permanent and transitory components, between self-employed and payroll households. In particular, self-employed households experience higher levels of both income and consumption inequality, the increase in total income and consumption inequality is mainly driven by an increase in its transitory component. Furthermore, findings from other descriptive measures of inequality, such as the Gini coefficient, the variance of the log, 90th/10th, and 50th/10th percentile ratios, support the notion that income inequality is higher than consumption inequality across all groups, with self-employed households exhibiting a more pronounced difference.