Public sector v self-employment: A wager

You have probably heard about the wager between Jonathan Portes and Andrew Lilico about how much inflation will rise with economic growth. Not to be outdone, Ben Dellot and I have had a bet about the rise in self-employment and the fall in public sector jobs.

Ben reckons the self-employed will outnumber public sector workers by the middle of 2017.

Self-employment-and-public-sector-employment-2I think he’s wrong for two reasons; the rate of increase in self-employment will slow down as the economy picks up and the government won’t deliver all its planned public sector cuts.

Ben still thinks he’s right, though, and has agreed to take my bet.

Records don’t go back far enough to be able to tell when the self-employed last outnumbered workers in the public sector but it was probably well before most of us can remember. If Ben turns out to be right, it will be a significant social and economic shift.

Neither of us are high rollers so our wager is for slightly less than £1,000. It is, however, index linked. Two pints of beer are at stake as the dice roll on the future of the British labour market.

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No red tape bonfire for trade unions

Simon Wren-Lewis reflects on the different language used about regulation and employment law when the restrictions apply to employees.

Employees are already beset by red tape if they try to improve their working conditions. Now the UK government wants to increase the regulatory burden on them further, by proposing that employee organisations need a majority of all their members to vote for strike action before a strike becomes legal.

Why should laws that apply to employers be regarded as a regulatory burden, but laws that apply to employees are not. Labour markets, alongside financial markets, are areas where the concept of a ‘free’ market uncluttered by regulations is a myth.

The government, although declaring its intention to reduce the burden of employment law, is considering tougher legislation on industrial action and, possibly, an outright ban in some areas. (See previous posts.)

Not that this stance is unusual. According to the most recent OECD report on employment protection, only two other OECD countries have less protection for the individual employee than the UK. Those countries are Canada and the USA.

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Yet, in both, legislation against industrial action is tougher than it is here. In the USA, all federal government employees and most other public sector workers are banned from striking. Canada has bans on strikes in essential services, the definition for which is fairly broad, and its Back to Work law can be used to force even private sector employees to end their strikes.

These governments’ antipathy to regulation disappears when it comes to restricting industrial action. Labour law, it seems, is fine if it’s applied to trade unions. Our government appears to be thinking along similar lines.

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The British economy’s long bath

This was a watershed month for the UK’s slow recovery, with a number of things finally getting back to where they were before the recession. In July, GDP, the employment rate and the number of full-time jobs edged above 2008 levels. The FT did a celebratory piece this weekend with some great charts from Chris Giles.

When you look at the per capita figures, though, things don’t look quite so good. The population has risen since 2008, so, once you divide it up, 2008’s GDP doesn’t go as far.

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The employment figures tall a similar story. The rate might be back where it was before the recession but the net increase in jobs has been almost entirely due to part-time and self employment.

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As Michael remarked:

Put plainly, what it shows is that the recovery of the employment rate to previous levels has been driven entirely by growth in numbers of people who aren’t full-time employees. That doesn’t mean there haven’t been any new full-time employee jobs created, but it does mean that no more have been created than have been lost. The population has grown considerably since 2008, yet the economy has been able to provide additional employment only in the form of part-time employment or self-employment.

Much of this additional employment doesn’t pay very well. Real average earnings are still 10 percent lower than before the recession or, when you include all those self-employed people, probably more than 12 percent lower.

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Apparently, George Osborne thinks he is going to get a big tax boost in January when the self-employed pay their contributions. Given what has happened to self-employment earnings in recent years, though, such a recovery would have to be miraculous. As Philip Inman says:

[A] bigger rise from self-assessment receipts in January 2015 is far from certain. Wages remain depressed and it is not clear how many skilled, well-paid jobs have been created. More importantly, the biggest boost to employment comes from the 700,000 self-employed people who have pushed employment totals to new highs. The Treasury can only guess at their impact. It doesn’t know how many are in low-paid, part-time work. It doesn’t know if they will earn enough to pay tax at all.

The Resolution Foundation’s report last week showed that, seven years after the banking crash, many people are still in considerable financial distress.

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It warned that a rise in interest rates to 3 percent could double the number of households facing difficulty paying off their mortgages. We can’t really talk about a strong economy if a rise to what we used to think of as a low-ish base rate is all it takes to tip a couple of million people over the edge.

What the country needs now is an increase in secure, dependable, basic rate tax-paying full-time employment, of the sort that enables people to provide for their families without the need for in-work benefits. But, as the Migration Advisory Committee noted earlier this month, this is just the sort of employment that has been in decline in recent years.

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Recovery there may be, then, but this is still a country of stagnating wages, high debt and a lot of precarious employment. That isn’t something that is going to be fixed quickly.

Where we go from here is anybody’s guess. Even the people who are paid to understand all this stuff have no idea. Full-time employment seems to be increasing and, if this were a normal recovery, we would expect pay to start rising soon. If the optimists are right and the economy continues to grow at 3 percent per year, things will start to look a lot better. Even the 2015 Dilemma won’t be quite as bad.

So far, though, this has not been a normal recovery so predicting that it will turn into one would be a bit rash. Just because some things have got back to their pre-recession levels, it doesn’t mean we are back to normal. As Frances says, it’s still a bit early to break out the bubbly.

Back in 2009, WPP boss Martin Sorrell predicted a bath-shaped recession; a sharp fall, a bump along the bottom, then a slow rise. If you look at the per capita GDP graph, he was spot on. What he probably didn’t realise at the time, though, was just how long a bath it would be.

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Tony Blair’s leadership

The anniversary of Tony Blair’s election as Labour leader prompted several re-appraisals of the man and his time in power. Even though he has been vilified since leaving office, many on the centre left, and quite a few others too, look back on the Blair era with fondness.

I’ll leave others to talk about his political legacy and whether what he did was right or wrong. Whatever else you might say about Tony Blair, though, he had, and still has, the sort of confidence people look for in a leader. People are drawn to those who appear confident and Tony Blair always did. Blair would have known how to handle Nigel Farage, said Michael White after Nick Clegg’s disastrous attempt to take on the UKIP leader in televised debates.

No-one has any doubt that Nick Clegg believes passionately in the EU but, when faced by a bombastic opponent with a simple message, he just couldn’t win the argument. Something was lacking. Blair, on the other hand, famously tore Farage apart.

Tony Blair had that knack of sounding confident even after he or his side had made a cock-up. He would come on TV and say, “Hey, look….”, after which he would go on to explain that, yes, things hadn’t gone well but, y’know, in the grand scheme of things, we are still on the right track. He pulled it off many times and, on the whole, even after the most vicious tabloid attacks, the polls swung back his way again.

As Bob Sutton says, great leaders are confident even when they are not really sure. Blair had that self-belief that meant, whatever happened, he always reckoned he’d sort it all out in the end. That came across and people bought it. Even after the Iraq invasion. His popularity only collapsed when he started wavering. He wouldn’t say whether or not he would go, then he said he would but he wouldn’t say when. The certainty that had been the hallmark of his leadership was no more. The magic had gone and, with it, the voters.


Chart via The Economist

One of the stories that got lost during the 2010 elections was how well Labour did in the council polls. As Tony Travers said, if you start from 2006 instead of 2005, there was a swing back to Labour in 2010. This is because, in 2006, Labour’s popularity had crashed spectacularly. The will-he, won’t-he uncertainty at the tail end of the Blair era destroyed the support built up over the previous decade. Blair’s selling point was confidence and, once he stopped exuding it, people deserted him.

That ability to sound confident and turn things round even when you are on shaky ground is something few of today’s politicians seem able to do. David Cameron tries to do the “Hey, look…” thing but never quite pulls it off. Ed Miliband, while perhaps firmer in many of his beliefs than Tony Blair, manages, nonetheless, to come across as very uncertain. No-one looks a match for the likes of Nigel Farage and Alex Salmond, with their easily understandable ‘it’s all crap and it’s all your fault’ messages.

Tony Blair had another swipe at UKIP yesterday, in a speech which got three standing ovations from the many who are still faithful. Some of this is because a lot of people think that, on the whole, most of what he did was right. But there is also a yearning for a style of leadership; a man who said that, even if things go off track sometimes, this is the right way to go, follow me! It may be irrational, people may even know it’s irrational, but they are still drawn to those who appear confident. Tony Blair had that confidence in spades. That, as much as anything else he did, is what won him three elections.

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Austerity: Yesterday’s news. And tomorrow’s!

Compared to previous years, there wasn’t much reaction to the OBR’s Fiscal Sustainability Report. OK, there was a hurrumph from Jeremy Warner, as you might expect, but that was about it. This may simply be because the OBR’s outlook was a little better than last time or, as Jeremy would have it, “not quite as unsustainable as it was a year ago”. But I wonder if something else is going on. Looking at the TV and newspapers recently, it’s almost as though austerity is yesterday’s news. The economy is growing, employment is up. OK, we’re still waiting for pay to rise but, on the whole, the recession is history.

Something else happened over the past year or so, though, which didn’t get much coverage. George Osborne eased off on austerity. Jonathan Portes noticed as did Simon Wren-Lewis and the IFS.

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The government’s original plan to reduce public expenditure by 4 percent in real terms by 2015 (see page 44 of the 2010 budget) is now going to take another 4 years. But the aspiration hasn’t gone away, it’s just been kicked into the next parliament. What we will get, therefore, is back-loaded austerity. The pattern for public services funding is cuts, followed by an easing off, then another set of cuts.

The overall picture looks like this, DEL being spending on public services. (I went into the maths of all this a couple of months ago.)

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Which means this for the NHS.

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Charts via The King’s Fund.

And this for local government.

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Chart via Local Government Association.

The funding problems in local government are like those for the overall public sector in microcosm. After taking out the nationally protected funding for health and schools, there are other services which local authorities are obliged, either by statute or by strong political pressure, to provide. This is, effectively, a further layer of protection. Inevitably, therefore, the cuts fall on those services without it.

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So far, the largest reductions have been made in regulatory areas like planning and in sport and leisure. These are the areas where the fewest people are likely to notice and where the impact of cuts may not be seen for some years.

There’s worse, though. (Come on, you knew there would be.) The LGA’s funding projections on the graph above assume that councils will make efficiency gains of around 2 percent per year and introduce or increase charges for some services.

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This level of efficiency gain should be just about do-able but, even with that, the LGA still reckons there will be a funding gap. It estimates that most councils’ reserves will be used by 2016/17 so, without an increase in funding, some services will simply disappear.

The overall picture, then, is one of back loaded austerity. Not only are the planned cuts over the next parliament bigger, they are likely to feel worse because the easy ones have already been made. To use Giles’s metaphor, if you give blood once, it seems easy. If you are then asked to give blood again and again over a short period, you will start to feel ill. Which is how a lot of public service providers will be feeling over the next few years.

At the moment, though, we seem to be in some kind of phoney war. The pressure has eased, the economy is on the up and no-one is mentioning the A-word. Or, fr that matter, the T-word. It’s as though the remaining deficit reduction has been taken as a done deal.

I know from Twitter that some organisations have been discussing the 2015 dilemma at length. I assume similar debates are taking place across the public sector. Among politicians and in much of the media, though, it really does feel as though austerity is yesterday’s news. It all feels a bit unreal when you look at how much of it is still to come.

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The self-employed: Not employees but not always business people either

Even though the number of employees is now rising steadily, self-employment continues to increase as well, hitting another record level this month.

As ever, the Resolution Foundation were quick off the mark with a chart.


Politicians and journalists seem to have stopped hailing this as the sign of an entrepreneurial revolution, though, which it quite clearly isn’t.

The Social Market Foundation published a report last week comparing entrepreneurship across a number of different countries. They defined high value entrepreneurs as those who go into self employment because they see an opportunity and want to build a business which will increase their income.

Drawing on the data from the Global Entrepreneurship Monitor, they found that, despite having a relatively high rate of self-employment, the UK had a relatively low number of high value entrepreneurs.

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There is no relationship between the number of self-employed in a country and the number of people engaged in building new businesses. Countries with low self-employment, like Norway and the US, have higher percentages of entrepreneurs than countries with high self employment, like Spain and Italy. These findings are similar to those of a Centre for Policy Studies report a couple of months ago (see previous post). They found that, if anything, countries with high levels of self-employment were less likely to produce entrepreneurs. The number of self-employed people has no bearing on the creation of new businesses. The idea that persuading more people to go self-employed makes a new Apple or Google more likely is simply deluded.

Looking at the story of self-employment over the last decade and a half, it’s quite clear what has happened. Since 2000, the number of businesses employing people has increased roughly in line with the size of the workforce. Over the same period, the number employing only the owner has shot up.

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Chart via BIS.

Of these businesses, relatively few are turning over enough to be above the VAT threshold. Again, the growth over the past decade or so has been among low turnover businesses.



Businesses 2000-13

Source: BIS Business Population Estimates 2013

Recently, I have been invited to a number of round-table discussions on self-employment. The participants had varying backgrounds and a wide range of views on the subject but most of us came to the conclusion that, with the rapid increase in self-employment, we are seeing the rise of a different type of worker.

Traditionally, we have seen the self-employed as business people and public policy, for the most part, still treats them as such. However, an increasing number of them are not in business because they like running businesses. Their businesses are simply the means which enable them to do the sort of work they want, or are forced by circumstances, to do.

A study by the RSA earlier this year grouped the self-employed into tribes. Only around a third were business builders (the visionaries and classicals). The rest were self-employed for other reasons.

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The new self-employed are workers but not employees and business owners but not necessarily business people. They don’t behave like entrepreneurs or employees. They have different priorities and needs.

The rise in self-employment pre-dates the recession and, if current trends persist, it looks as though it will continue during the recovery. It’s possible, though I’m somewhat sceptical, that there will soon be more self-employed people than public sector workers. But, while this is a significant shift in the labour market, it’s not an entrepreneurial revolution. It’s something different, though as yet, we’re not quite sure what.

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Strikingly stupid

Conservative ministers used this week’s public sector strike as an opportunity to revive the idea of further legal restrictions on industrial action. Raising the threshold to 50 percent of  a those entitled to vote seems to be the most talked-about option and the one championed by Boris Johnson.

Union leaders and others were quick to point out that the mayor and most MPs were not elected by a majority of their constituents and that many did not even have the support of the majority of those that voted. The Coalition’s mandate is based on the votes of less than 39 percent of the electorate. If we were to apply the 50 percent rule to general elections we’d never get a government at all.

Of course, elections are different from yes/no votes, which is why referendums often have high thresholds, rather than simple majorities. The presence of many parties in elections mean that different rules apply.

There is one other way in which parliamentary, mayoral and council elections are different from strike ballots, though, and it’s a much more important one than the argument about majorities.

Political elections are binding on everyone. Unless you decide to emigrate, you have to abide by the laws the new government makes, regardless of how small its percentage of the vote was.

Strike ballots, on the other hand, are binding on absolutely nobody. If your union votes to strike, you are perfectly free to ignore it, as lots of public sector workers did on Thursday. There is nothing the union or anyone else can do about it. Unions are prevented by law from disciplining members who refuse to go on strike. Yes, there may be some peer pressure but if that extends to intimidation, the perpetrators could find themselves facing criminal charges.

All a strike ballot does is make it legal for those that want to go on strike to do so. That’s all. Everyone else can ignore it.

Putting the threshold up to 50 percent would mean that all abstentions would be counted as no votes. An apathetic majority could therefore stop a committed minority from exercising their right to strike.

Strikes are unpopular and people usually moan about them. Having said that, polls suggest that the public was broadly behind yesterday’s strikers. Withdrawing the right to strike, which, in effect, a 50 percent threshold might do, is a big step. No government has ever banned strikes in peacetime. Even in the aftermath of the General Strike, when there was a fear of communist insurrection, the Baldwin government’s anti-strike laws did not go as far as David Cameron is suggesting today.

If anything, the current law on strikes is biased in favour of those who don’t wish to strike. Whatever the result, they don’t have to. Those that want to strike must get a majority vote first. To tilt the balance any further against them would be unfair.

There is no need for more legal restrictions on strikes. There is no crisis and no threat to security or public safety from industrial action, nor is there likely to be in the near future. There is no compelling case for changing the law. Unless you count the desperate need for an eye-catching election policy as a good enough reason.

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