Why the rise in self-employment is a Bad Thing

The number of self-employed people reached another record high over the last quarter. 4.2 million people are now working for themselves. This is becoming a monthly occurrence which is perhaps why it passes with so little comment. We certainly don’t hear the ‘new wave of entrepreneurialism’ claims as often now.

Maybe this is because people are beginning to realise that self-employment isn’t all it’s cracked up to be – for individuals or for the economy as a whole.

David Blanchflower’s chart, drawn from the HMRC’s Survey of Personal Incomes, compares self-employed and employed income levels over the past decade. During this period, whichever way you measure it, self-employed people have always earned less than those in employment.

It gets worse. The median income of the self-employed has been falling for some years now. This is because, as we know, the increase has come not from those running new businesses but from odd-jobbers scratching around for work. These figures are not adjusted for inflation, so the real-terms shrinkage in self-employment incomes will be even higher. Is it any surprise that the OECD blames the rise in self-employment for half of the UK’s increase in inequality?

The mean income of the self-employed has increased over the last decade, though even here the gap between employment and self-employment has widened. The mean is boosted because a very small number of self-employed people earn a lot of money.

As this HMRC chart shows, a higher proportion tax income comes from the self-employed in the top-rate band than in any of the others.

This small group of high earners give us the I-Met-A-Man stories of the wealthy self-employed. Don’t be fooled. For most people, self-employment means lower pay.

All over the world, high levels of self-employment are a symptom of poor economies. The UK is no different. The rise in self-employment here is a sign that the economy is weakening. So, while they might make the employment figures look good, the self-employed will spend less and pay less tax, neither of which will do much to help the recovery.

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11 Responses to Why the rise in self-employment is a Bad Thing

  1. Tony Glover says:

    This is so true. Much of the time it is people doing the same work as before, but ins casual, free lance basis, without proper rights or employment protection.

  2. Excellent post – usual high standards. Would be quite interesting to see how much of the s/e rise is driven by ex public sector workers, and /or older people with occupational pensions who are boosting their income. Have a suspicion these are big factors but not clear on data sources.

  3. Meg Peppin says:

    As always, informative and thought provoking.

    I wonder too if it’s the over 50′s who are meeting with closed doors from recruiters, so have no choice but to try and get freelance work, not just public sector people.

  4. Dave P says:

    Lower income seems here to equate to a bad thing. Is that necessarily true?

  5. Andy Davies says:

    Yes but then you ignore those of who chose self-employment because it gives us more control over our lives, a better balance, less commuting etc.

    You cannot look at just the financial income from self-employment without examining the other factors too…

  6. Interestingly this blog was flagged to me this morning: http://brickonomics.building.co.uk/2012/08/the-changing-shape-of-the-uk-construction-workforce/comment-page-1/#comment-1652

    Looks at rise in self-employment and decline in direct employment in the construction industry; one of the sectors that has fared particularly badly recently

  7. Pingback: Why the rise in self-employment is a Bad Thing - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  8. Are the figures true though?? Self employed people can (allegedly) gain some of their income in an “invisible” way , if you know what I mean. In addition, many costs to the employed in going to their job can be written off against tax by the wise self employed person doing essentially the same work.
    Plus, if you have a “good accountant” he can save you a lot of money in taxes.

    These “official” figures showing the self employed as worse off than the employed may not be true at all!

  9. Pingback: Ready, Unsteady, Gone? | Don't Compromise

  10. Pingback: Worker-owned capitalism – a collaborative alternative we should nurture? » 21stCenturyFix.org.uk

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