The ‘business start ups will save us’ meme is one that just refuses to die. Last week, former M&S boss Stuart Rose proclaimed an “entrepreneurial rush” based on the record number of companies being formed. Conservative chairman Grant Shapps said that entrepreneurialism is the key to social mobility. At least, that’s the way it’s being reported, though the piece itself is something of a ramble.
Let’s recap on what we know about self-employment.
1. Self employed people don’t earn as much as those in employment.
Source: David Blanchflower, based on HMRC data.
2. 40 percent of self-employed people are in the bottom 20 percent of earners.
Source: Institute for Fiscal Studies
3. Over the past decade, self-employed incomes have fallen more than those of the wider population
Source: Office for National Statistics
4. Most of the new businesses set up over the last decade are one-man bands
Source: New Policy Institute
While there has been an increase in the number of people who are self-employed there has been a reduction in the number of employees who work for the self-employed. Between 2008 and 2012 there were 66,000 fewer people who were self-employed and had employees working for them, with a 431,000 increase in people who were self-employed and worked solely on their own or with a partner but specify they have no employees. – Office for National Statistics, February 2013.
5. Worldwide, high levels of self-employment are associated with low per capita GDP and poorly performing economies.
Source: Gapminder, from data provided by the International Labour Organization
In general, self-employment rates are highest in countries with low per capita income although Italy, with a self-employment rate of around 25.5%, is an exception. – OECD
Self employment rates as a percentage of total employment
Source: OECD Factbook
6. Self-employment increases inequality levels in most major economies
7. Rising self-employment is cited as a major reason for Britain’s increase in inequality
About one-half of the increase in individual earnings inequality is explained by changes in self-employment income as on the whole the self-employed earn less than full-time workers. Their share in total earnings increased by one fifth since the mid-1980s and among the self- employed, the gap between high and low earners has risen. – OECD, Why Inequality Keeps Rising, UK Country Note
Self-employment income plays a much more important role in the UK. The contribution of self-employment to the increase in inequality between 1979 and 2004 was of 0.065, i.e. half of the total increase…… The large contribution of self-employment to rising inequality is due to the sharp rise of the share of self-employment in total household income. – Source: Cecilia Garcia-Peñalosa and Elsa Orgiazzi, Factor Components of Inequality: A Cross-Country Study, Aix Marseille School of Economics (France) March 2013
8. The UK has seen one of the highest increases in self-employment among the major economies
Of course, social mobility is a difficult thing to measure and it’s hard to decide whether it’s getting better or worse. From this data, though, it looks very unlikely that entrepreneurship is going to make much of a difference. Starting a business might help a few people “escape the circumstances of their birth” but they will be the lucky ones. For most people, self-employment means lower earnings and even less security. High levels of self-employment are associated with higher levels of inequality and lower per capita GDP. There is a strong relationship between self-employment and basket-caseness.
Britain’s level of self-employment is high, relative to previous years and to other developed economies. A lot of people still seem to think this is a Good Thing. For the life of me, I can’t understand why.