What does the evidence say?
Self-employment in the post-War period in the UK was stable, at times rising, at others falling, but the level increased rapidly during the 1980s and again over the last 15 years. About one in seven of those in employment are currently self-employed. The increase in self-employment between March 2008 and March 2017 accounted for almost a third of total employment growth.
Historically, the self-employed have been disproportionately male and aged over 50. They have tended to work longer hours than employees and be concentrated in specific industries (agriculture, construction) and occupations (especially skilled trades). However, the relative and absolute growth of self employment has been accompanied by a rise in the share of those who are female and who work part-time, and by growth in a broader range of industries and occupations providing personal services and professional advice.
The self-employed have seen the gap in earnings with employees widen (to their disadvantage) rather than narrow over this period. Nevertheless, a higher proportion of the self-employed (than employees) have the very highest levels of job satisfaction: they derive greater value from the nature of their work and say they have more control over it, appearing to find it easier to manage work pressures and reconcile their business with other aspects of their lives.
Self-employment in the UK is close to the European average. It has been increasing, whereas, measured as a share of total employment, it has continued to decline in many other countries.
What are the potential explanations?
While self-employment is sensitive to labour market conditions, only a relatively small proportion of the increase in recent years could be characterised as being driven exclusively by necessity, the inability to find dependent employment. Job loss was the event that originally led some people to switch to self-employment, but even here job loss could have triggered a change that an individual had thought about, or aspired to, in any case, with necessity and opportunity coming together.
There is no convincing evidence of the increase being driven by employers exploiting their position, forcing ‘bogus’ self-employment on the people working or them. Indeed, if there has been any change in the numbers of ‘bogus’ self-employed, this could just as easily have been the result of changes in tax law or its enforcement and of individual preference.
Technological advances mean that the cost of setting up a business and selling the fruits of one’s labour have dramatically reduced in many sectors. This is of wider importance than the status of ‘gig economy’ workers, which accounts for a small percentage of the UK workforce.
Regulation in the UK aims to encourage setting up new businesses. There are probably more opportunities for self-employment than a decade ago. The evidence suggests there is a sufficiently large pool of people in the UK favourably inclined towards self-employment for this to translate into more people remaining self-employed. An ageing population has also played a supporting role since older people are more likely to attempt self-employment.
What are the implications?
More self-employment may be a factor behind the UK’s poor productivity record lately, judging by the apparent earnings of the self-employed. And the self-employed may find it more difficult than larger businesses to make the investments required to improve their performance. However, the self-employed are at least as happy with their lives.
Employers probably need to pay the self-employed more attention. Own-account traders and freelancers have been long-standing features of some labour markets, and firms have always used them. Some of their employees will also have their own business, not necessarily ‘gig economy’work. How do employers manage this relationship? Can an employer expect an employee to ‘go the extra mile’ when they’re trying to grow their own business? And should they? Why shouldn’t employees put their own interests first?
There has been an awakening of interest in the self-employed in political parties and think tanks. It seems difficult to justify policies that promote self-employment, even if policies that facilitate entry to, and exit from, self-employment are still needed. Arguably, the balance of rights and responsibilities has shifted in favour of the self-employed, but moves to secure the tax base and remedy this through rises to National Insurance contributions have been shelved. The introduction of Universal Credit may have profound implications for the low-earning self-employed.
Technology is reducing the transaction costs that are the reason why we have firms, creating more space for sole traders and micro businesses. Most of the self-employed are probably doing work that is not immediately vulnerable to automation. But the future is uncertain because markets colonised by large numbers of sole traders can be vulnerable to the novel ways of organising work offered by platforms.
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