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Traditional and Nontraditional Earnings: Demographic, Financial, and Beneficiary Patterns

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Abstract

We use the 2014 and 2018 panels of the Survey of Income and Program Participation to create a schema of earnings that come from employee and nonemployee sources. Traditional earnings are from a job or incorporated business, while nontraditional earnings are from an unincorporated business or other work arrangement. We then create a typology of workers based on their experience with traditional and nontraditional earnings, describe workers of each type along dimensions of demographics, financial well-being, and beneficiary status, and use regressions to identify key predictors of earnings sources. Among prime-age workers, we find that workers with nontraditional earnings vary significantly based on whether the nontraditional earnings were the only source of wage income or in conjunction with traditional earnings. Among older workers, we find that receipt of Social Security benefits is a key predictor of nontraditional earnings. We discuss both findings and their research and policy implications.

Key Findings

  • We define a typology of workers based on their experience with traditional (employee employment or self-incorporated business) or nontraditional (all other arrangements) earnings. Our typology of workers enables a study of earnings sources that includes earnings patterns over time, rather than point-in-time analysis of an earnings source. We have three key findings. Among prime-wage workers:
    • Nontraditional type workers, who do not have concurrent earnings from traditional sources in a year, are more likely to be those who are less successful in the traditional labor market. This suggests that nontraditional earnings are potentially the result of barriers in the labor market, rather than preferences.
    • Straddler type workers, who have concurrent earnings from nontraditional and traditional sources, are very different than the nontraditional type and are more likely to be those who are very successful in the traditional labor market. This suggests that nontraditional earnings are potentially the result of preferences, rather than barriers.
  • Taken together, these first two findings present a possible means of proxying constraint versus preferences in the labor market for nontraditional earnings in future research: traditional earnings experience. Among all workers:
    • A consistent predictor of being a nontraditional type worker is receipt of Social Security benefits. This suggests an array of possible motivations, from benefit insufficiency, tax penalty avoidance, barriers in the labor market, or preference to continue working past typical retirement age.
  • When studying earnings from employee and nonemployee sources, our findings clarify the importance of considering the worker’s overall earnings circumstances, rather than just the source itself.

Citation

Edwards, Kathryn Anne, and Daniel Schwam. 2023. “Traditional and Nontraditional Earnings: Demographic, Financial, and Beneficiary Patterns.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2023-456. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp456.pdf

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Project

Paper ID

WP 2023-456

Publication Type

Working Paper

Publication Year

2023