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.