Labour Market

Self-employment: entrepreneurship or casualised labour?


Trade, Development, and Immigration
The Department for Business Innovation and Skills launched an enquiry into self-employment last July under entrepreneur Julie Deane: it is expected to report shortly.

Self-employment jobs have grown faster than employee jobs since the recession. This has led some commentators to argue that many of the self-employed are not in ‘real’ jobs, but are forced to scrabble around for freelance work.

On this view, the UK’s apparent post-2010 employment ‘miracle’ is an illusion. Employers are cynically outsourcing work which ought to be done by those in regular employment. They get the work done more cheaply because they can avoid many of the costs of employing people directly, ranging from office space to auto-enrolment in pension schemes, but workers suffer in terms of lower wages and benefits and growing insecurity.

There are four and a half million self-employed in the UK, about 15% of the workforce. There will always be some working for themselves who are not in a good place, but a look at the detail of the figures suggests a much more optimistic picture.

For one thing, the basic premise – that the numbers entering self-employment were rising faster than overall employment – is a bit misleading. The bulk of the increase in numbers was actually because there was a sharp fall in those leaving self-employment. This means that more were persisting in self-employed status (a result partly attributable to more of the older self-employed working on after state pension age), and less exiting to employee status, unemployment or inactivity.

For another, there is little evidence of correlation at the industry level between employee jobs lost and increasing numbers of self-employed. This suggests that the easy belief that outsourcing is driving self-employment needs qualification.

The government’s position, give or take some traditional concerns about tax-dodging by construction workers, is that self-employment is A Good Thing. People striking out in business for themselves show enterprise, may boost growth and reduce the benefit bill.

On average the self-employed report themselves as happier than the employed. The vast majority are not seeking employee status, and those self-employed who are working part-time are less likely to want to work more hours than the part-timers with employee status.

There is reason to believe that the numbers of the self-employed will continue to rise. There is a rising trend in higher-skilled workers such as managers and professionals becoming self-employed, often as consultants. The numbers of self-employed women – historically under-represented amongst the self-employed – are growing faster than those of men, and in a wider range of occupations than in the past when hairdressing, cleaning and childcare accounted for most women with this status. And as the greying of the population gathers pace, the tendency of older workers to have higher levels of self-employment will continue to boost numbers.

Although younger workers are far less likely than older workers to be self-employed, their numbers are growing too – and are already much higher than in most continental European countries.

Changes in technology have facilitated changes in work patterns. The internet has made it far easier to work at home (over half the self-employed regularly work from home, as opposed to about 6% of full-time employees) and to obtain business online. It is much easier to contact suppliers and customers, and business registration is easier. Apps such as Uber reduce transactions costs and facilitate new forms of employment.

A related issue is the growth of the ‘gig’ economy, where the specific business is inevitably short-lived and does not justify a permanent employment infrastructure. Historically one-off construction projects were an example, but others include exhibitions, arts and entertainment events and so on. Self-employed people come together for a project, then move on.

What should the role of government be? Freely-chosen self-employment – which is what seems to be the case for most – may be good for the economy, but does it require any help from the state? There have been dozens of schemes to boost self-employment over the years: they have not had much impact. Offering grants, cheap premises or finance to target groups usually has a significant ‘deadweight’ effect as these schemes subsidise those who would have succeeded anyway. Training schemes, though no doubt worthy, similarly have little long-term impact.

Let’s hope that Ms Deane’s report concentrates on barriers to self-employment such as excessive occupational regulation (such as that in such disparate areas as finance and childcare, which has increased substantially since 2010), over- complex tax requirements and the difficulties faced when the self-employed begin to take on employees, rather than short-lived and ineffective subsidies.

Prof Len Shackleton is a Visiting Fellow at the IEA, and professor of economics at the University of Buckingham.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.