Weak economy = more odd jobbers

The number of self-employed people has hit yet another record high. It’s becoming almost a monthly occurrence now, as are the arguments I keep having with people about whether or not it’s a Good Thing. They usually start with me saying it’s another indicator of a weak economy and someone responding with something like “I went self-employed five years ago and I’ve never looked back,” or “My mate quit his job and set up on his own and now he’s loaded”.

You know what? I’m really pleased for you and your mate. I love hearing about people who have built up and run successful businesses or carved out a niche that means they can do the sort of work they love. It’s really great. But, like the politics of I Met A Man, this preference for anecdote over data tells us nothing about the bigger picture.

Let’s recap on what we know.

  1. Self-employed people have, on average, lower salaries than those in employment.
  2. 89 percent of those who have become self-employed since the start of the recession work less than 30 hours a week.
  3. The self-employed have higher personal debts and arrears on household bills.
  4. High levels of self-employment are a feature of poorer economies.
  5. According to the OECD, half the increase in income inequality in the UK over the past 30 years can be attributed to this country’s high level of self-employment and the low growth in self-employment income.

Even the argument about the newly self-employed being the entrepreneurs of the future doesn’t really stack up. As these charts from the New Policy Institute show, while the number of self-employed has risen by more than a million since 2001, the number of people running businesses of more than one person is about the same as it was a decade ago.

Some of those in the ‘Running a business’ or ‘Partner in a business’ categories will have started as sole traders, replacing those who retired or packed up, but most of the rise in self-employment has been among the small one-person companies. The increase in self-employment hasn’t led to an increase in the number of small businesses. Hardly evidence of a new entrepreneurial spirit is it?

The rise in self-employment, then, is almost certainly a sign of our economy’s weakness. People are opting for under-employment rather than unemployment, as even the Telegraph is now acknowledging. Sure, among the newly self-employed will be some who are enthusiastic about it, at least for now, but ultimately it will mean lower pay for most and, therefore, lower tax revenues for the exchequer. Record levels of self-employment are both a symptom of and a contributor to the UK’s economic malaise.

There is no shortage of people saying that the growth in self-employment is a Good Thing, basing their assessments on their own or their friends’ experiences. The data, though, suggest that, for the economy as a whole, it probably isn’t.

If we really must do ‘I Met A Man’ (or Woman) stories, how about this one from the BBC’s Mark Easton:

Only last week I wrote about the youth worker Karen Creed made redundant by Norfolk County Council and now operating as a freelance. Her income has been cut to a third of what it was but she is undoubtedly a full-time self-employed worker.

However the cheerleaders for self employment try to spin it, too much of this is definitely not a Good Thing.

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7 Responses to Weak economy = more odd jobbers

  1. Pingback: Weak economy = more odd jobbers - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Bina says:

    You are right to point this out. I know from the subcontracted work I do that a lot of white collar workers have been ‘rationalised’ into competitive self-employment. I estimate the net result of this over a period of a few years will be further ‘rationalisation’.Those able to create mutli- & diverse conglomerates will be able to invest enough to keep the workers up to date/viable – the rest will fall by the wayside. They’ll be priced out of the market and deskilled at the same time.

  3. Some of the positive anecdotal evidence for self-employment relates to people who have become well-paid contractors with in-demand skills in IT, engineering, media and so on. These freelancers are thought to number about 1.5 million out of a working population of 29 million. Recent blather-storms about civil servants and BBC employees masks the fact that these roles are widespread among the middle-class readership of the Daily Mail. Managerial, professional and technical roles amount to over 12 million out of the total working population, so high-wage freelancers probably account for at least 10% of this subset.

    The charts you reproduce above are bit misleading, which reflects the limitations of the underlying ONS data. Many “freelancers” will be categorised as “running a business” or “partner in business” as they are employed through a personal services company. The use of a PSC generally results in the avoidance of tax, so this personal “success” reflects a wider social cost. Together with the lower tax revenues arising from low-pay among the less-skilled self-employed, this constitutes a double whammy.

  4. Doug Shaw says:

    Sadly, the main thrust of this piece is spot on. Thanks for bursting my pre-weekend good mood bubble :) #justkidding about the last bit.

  5. christof_ff says:

    I know it falls into the ‘I met a man’ category, but the majority of self-employed people I know tend to under-declare their income for tax reasons – a luxury not available to PAYE employees. Even on a limited scale, this must affect the stats you’re using.

  6. rogerh says:

    By the looks of things you can get a Web Designer or a Strategic Marketing bod pretty easily, loads on the market, but my roof leaks and you can’t get a decent roofer for love nor money. Borrowed a tower and fixed it meself. Interestingly the jobs for VHDL Engineers (high-tech to you) seem few and tied to the govt or military in some way, the commercial jobs being in Germany. Pay not too bad at £50/hour.

  7. Tyler Murphy says:

    I’s a tricky one – many friends have suffered at the hands of the recession in the past few years, and have chosen to market themselves as self employed, rather than unemployed. I think until the stigma surround unemployment changes (and by that I mean people actively seeking work), things are unlikely to change.

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