Yesterday, the Resolution Foundation published its report on living standards. Its most obvious theme is that the recession has made most of us worse off. However, it also shows that some of the features of the labour market which we associate with the downturn were underway before 2008 and were just given a boost by the economic crash. For example, the increase in self-employment over the last few years has been rapid but the percentage of self-employed workers has been increasing since well before the recession.
There is also some evidence that self-employed pay rates were beginning to wobble before the recession too. (See last week’s post.)
The report comments:
[P]erhaps the most overlooked feature of our new labour market is a transformation in the scale and nature of self-employment. Self-employment continued its long-term rise throughout 2013. In only ﬁve years since 2008 more than a third of a million (370,000) people have moved into self-employment and nearly 1 million (940,000) since 2000. This historic migration of employees into self-employment runs alongside a slump in the earnings of the self-employed. The median annual earnings of self-employed people fell 20 per cent in the last ten years, from £15,000 to £12,000. This data highlights a growing phenomenon of ‘odd jobs’, in which low pay is accentuated by the income insecurity of self-employment.
It’s becoming clear that, whatever we are seeing here, it’s not an increase in entrepreneurialism, if, by entrepreneurialism we mean setting up and growing a business. According the BIS figures, since 2000, the total number of businesses has increased by over 40 percent, while the number of employers and businesses registered for VAT has barely moved. An increase in the number of businesses has not fed through into an increase in the number of firms big enough to employ people or have turnover over £79,000.
This is consistent with the findings of the New Policy Institute. The number of self-employed people running the types of business that employ people and generate large revenues is pretty much the same as it was a decade ago.
The last decade or so has seen a significant increase in the number of sole trading self-employed workers who don’t turn over enough to go above the £79,000 VAT threshold and certainly don’t enough business to employ anyone else.
Some of this is due to the weak economy. As John Philpott said, an army of odd jobbers is helping to keep the unemployment figures down. Along with zero hours contracts, low pay and a rise in part-time and temporary work, the increase in the number sole trading freelancers is a symptom of a under-employment. But might it also be an indicator of something more long-term?
As these surprising trends in the UK jobs market have materialised, the question arises as to whether they are structural or cyclical. The recent rise in full-time work is reassuring, suggesting that one of the pressures behind underemployment may start to ease. But indicators of job quality—the median pay of new jobs, and their temporary status—have proven more stubborn.
Swathes of the UK economy depend on paying wages too low to sustain a family. In hotels and restaurants, two thirds (68 per cent) of workers are low paid. These ﬁgures help to explain the transformation that has occurred in the nature of poverty in Britain in the last two decades. This year for the ﬁrst time the majority of people living in poverty in Britain are from working families.
The Resolution Foundation is pessimistic about wage growth over the next few years, even with the forecast improvement in the economy.
Is the fragmented, casualised labour market becoming entrenched? Having got used to using temporary as-and-when labour, or farming work out to self-employed contractors, will employers be reluctant to build up their permanent workforces, even as demand for their products starts to rise?
Probably, as the labour market improves, the number of self-employed workers will fall. But the longer term trend suggests that the rate of self-employment will not go back to where it was before the recession. It looks likely that employers will continue to use freelance and contract labour to a greater extent than they did in the past. Some of the “historic migration of employees into self-employment” may therefore turn out to be a permanent settlement.