In this paper we highlight the importance of analysing the evolution of income inequality separately for employees and self-employed workers. Using Spanish panel data on income and consumption for the period 1987-96, we find noticeable differences across these groups in the evolution of income inequality, and in the relative importance of the transitory and permanent components of income variance. The evolution of inequality is mainly explained by movements in the transitory component for the self-employed and by the permanent component for the employees. Our results suggest that different policies should be implemented for each group. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009.