There’s plenty to chew on in the IFS report on falling wages and low productivity. We may hear the term ‘wage rage‘ more often as the next election draws near.
This graph caught my eye though, as it confirms something that I have suspected for some time. Many of the self-employed don’t earn very much.
Nearly 30 percent of them are in the bottom 10 percent of earners and 40 percent are in the bottom 20 percent. Over 40 percent are earning below the 35-hour minimum wage. As the graph shows, this is nothing new. For many people, self-employment has always been precarious. The difference now is that the self-employed make up more of the workforce than ever.
I would be fascinated to see what proportion of self-employed people are receiving in-work benefits. Given these figures, I would guess that it is high, relative to the general working population.
Most of the newly self-employed are sole traders. The number of businesses and partnerships, the sort of firms that create jobs for a number of people, is still the same as it was a decade ago.
According to a recent survey, the biggest increases in self-employment have been in the North and Scotland (no surprise there), beautifully spun here by the Daily Wail as a North-South creativity divide!
The truth is, though, that many of these new startups are not real businesses at all. They are those John Philpott described as Odd Jobbers. As the IFS paper says, if they could only get jobs, “an increasing proportion of self-employed workers would be better off as employees.”
It’s fashionable in some quarters to talk about public sector ‘non-jobs‘. As public sector employment has declined, though, it has been replaced with low-wage ‘non-businesses’.
Flip Chart Fairy Tales 
Odd Jobbers won’t be eligible for many in-work benefits. They also face a significant temptation to under-report earnings…. I doubt the stats here are accurate.
Yes they are eligible, I know a good few who claim, so long as you know the system.
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There’s a significant difference between a public sector non-job and a self employed non-business – the former is paid for by compulsory taxation, the latter by voluntary transactions. If people were paying less taxes to fund public sector jobs there might be more money available to employ self employed Odd Job men to do things they actually want done, rather than be hectored by sociology graduates on how much fruit and veg they should eat, to stop smoking, to recycle their household waste and to reduce their carbon emissions.
yeah yeah, keep taking the embittered pills
The term “disguised unemployment” describes this phenomenon quite well. This phenomenon is likely to be contributing to the so-called “productivity puzzle”, where the recorded employment count is rising but output per employee is falling. Clearly,the productivity of self-employed odd-jobbers, who appear in the employment count, will have very low productivity.
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I think your view about low self-employed incomes is broadly right, however, there are many other aspects of being self-employed that could be taken into account in making sense of this.
Self-employment is a much older way of working than modern corporate ’employment’- people have been doing it since the year dot and many of its characteristics seem old fashioned too.
Firstly, money is not the only payment, barter can work very well too, not just because of the possibility of paying less tax but also because the parties may not have the money at hand to buy the product/services. It can also help to increase co-operation, an other important difference.
Working as a ‘sole trader’ means some jobs are just too big to be do-able. A tree surgeon for instance will probably manage most jobs with just one labourer but if a big or technically very difficult job comes up he’ll call in friends, even competitors to lend a hand and make it possible. This is often not payed for but done on the expectation of similar favours repaid in the future. To a limited extent the same may be done with plant or equipment.
Flexibility is another aspect. I mentioned a labourer but he is probably not employed by the main man. Money may be shared by ‘you take the money from job B and I’ll take it from A and C.
For most self-employed people is is vital to keep earnings below the VAT registration threshold. VAT, like PAYE is a major administrative burden for tiny businesses and it effectively puts up your prices by 20%, making it very difficult to compete. Staying below this level is easy for some, like say acupuncturists who have very few expenses but hard for say plumbers who have to supply a lot of expensive equipment that soon bumps up the turnover. As you’d imagine there are work-arounds here too.
Finally, there is the flexibility that is forced on the self-employed by irregular demands of jobs. No work for a couple of days? Time to service the van, fix the lawnmower, do some promotion. Self employment is a very different country where things are often not what they seem from the ‘top’.
Rick: you say “I would be fascinated to see what proportion of self-employed people are receiving in-work benefits.” Could you not ask your MP to ask this question in the House and then pass on the information to us?
Taking buildingstoat’s excellent response above, there may also be another trend at play. It may be the case that some people are deliberately trying to exist within a non-money, non-banking economy, based on barter and time-exchange/banking. It is one way to ensure that their money is not used to prop up or support in any other way the banking sector, widely seen as THE problem for most ordinary people. Ultimately, this represents a withdrawal from a finance capitalism system.
“I would be fascinated to see what proportion of self-employed people are receiving in-work benefits.”
As a self-employed person, I’ve been on the hunt and calling for this for several years as I don’t know any self-employed people, and I know many, who aren’t in receipt of some form of benefit now, whereas we weren’t four/five years ago. Every time politicians have boasted about unemployment figures over the past three years, we’ve collectively shaken our heads in the knowledge of what is actually happening: falling incomes subsidised by benefits. For many, it really is getting to the point where they’d be better off signing on.