The self-employed: Not employees but not always business people either

Even though the number of employees is now rising steadily, self-employment continues to increase as well, hitting another record level this month.

As ever, the Resolution Foundation were quick off the mark with a chart.

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Politicians and journalists seem to have stopped hailing this as the sign of an entrepreneurial revolution, though, which it quite clearly isn’t.

The Social Market Foundation published a report last week comparing entrepreneurship across a number of different countries. They defined high value entrepreneurs as those who go into self employment because they see an opportunity and want to build a business which will increase their income.

Drawing on the data from the Global Entrepreneurship Monitor, they found that, despite having a relatively high rate of self-employment, the UK had a relatively low number of high value entrepreneurs.

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There is no relationship between the number of self-employed in a country and the number of people engaged in building new businesses. Countries with low self-employment, like Norway and the US, have higher percentages of entrepreneurs than countries with high self employment, like Spain and Italy. These findings are similar to those of a Centre for Policy Studies report a couple of months ago (see previous post). They found that, if anything, countries with high levels of self-employment were less likely to produce entrepreneurs. The number of self-employed people has no bearing on the creation of new businesses. The idea that persuading more people to go self-employed makes a new Apple or Google more likely is simply deluded.

Looking at the story of self-employment over the last decade and a half, it’s quite clear what has happened. Since 2000, the number of businesses employing people has increased roughly in line with the size of the workforce. Over the same period, the number employing only the owner has shot up.

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Chart via BIS.

Of these businesses, relatively few are turning over enough to be above the VAT threshold. Again, the growth over the past decade or so has been among low turnover businesses.

 

 

Businesses 2000-13

Source: BIS Business Population Estimates 2013

Recently, I have been invited to a number of round-table discussions on self-employment. The participants had varying backgrounds and a wide range of views on the subject but most of us came to the conclusion that, with the rapid increase in self-employment, we are seeing the rise of a different type of worker.

Traditionally, we have seen the self-employed as business people and public policy, for the most part, still treats them as such. However, an increasing number of them are not in business because they like running businesses. Their businesses are simply the means which enable them to do the sort of work they want, or are forced by circumstances, to do.

A study by the RSA earlier this year grouped the self-employed into tribes. Only around a third were business builders (the visionaries and classicals). The rest were self-employed for other reasons.

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The new self-employed are workers but not employees and business owners but not necessarily business people. They don’t behave like entrepreneurs or employees. They have different priorities and needs.

The rise in self-employment pre-dates the recession and, if current trends persist, it looks as though it will continue during the recovery. It’s possible, though I’m somewhat sceptical, that there will soon be more self-employed people than public sector workers. But, while this is a significant shift in the labour market, it’s not an entrepreneurial revolution. It’s something different, though as yet, we’re not quite sure what.

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10 Responses to The self-employed: Not employees but not always business people either

  1. Tigger says:

    There are also probably a fair number of older people registering as self employed because you have to pay far less “top up” National Insurance to achieve the 35 years of contributions needed for a full state pension than you would as a normal unemployed person.

    I looked into this possibility a couple of years ago when the government said it was going to increase the number of qualifying years required from 30 to 35. At that time no legislation had been put before Parliament to make the change, but if they do implement that policy I may well become “self employed”.

    I’m not sure you have to do anything by way of work to justify this change of label to anyone, so there’s a seventh group above: people who already have sufficient pension/income to disqualify them from receiving any benefits but who are, in effect, unemployed and not setting up any kind of business at all.

  2. jeffrey davies says:

    whot one got to remember a lot of low paid workers have been pushed into this whilst they wernt told of the pitfalls there is going to be very many who will be putting in their end of year accounts to yet again a accountant has most will not even think of this cost at the least 400 pounds to do their accounts then the government will say to them that even thou you worked all those hours for that pittance of pay you haven’t earned enough to be deemed self employed now they are holding out their hands for all that working tax credits one had has the jcp hadn’t told you about this pitfall jeff3

  3. P Hearn says:

    In shock news today, a blogger revealed that not all self-employed people are dynamic entrepreneurs wanting to build the next Google.

    Darren, a plumber from Camden said “In all my years of working from the back of my van, I think successive governments have underestimated our strategic thinking, and in my case, the desire to create value in the marketplace through the design and implementation of innovative, high-value fluid dynamic solutions”. He later offered to do the job for “a century”, cash in hand, no receipts.

    Perhaps some, maybe most of the self-employed don’t like the “Business Bullshit, Corporate Crap and other stuff from the World of Work” and are choosing something different? Some by choice, some by circumstance.

    Even the Pooterish freelance management consultant characters, who are secretly scared witless by not working for a big company, are also learning something about life whilst they wait for the economy to pick up and offer them a safe haven back in corporate comfort.

    Good article: made me laugh. Thank you Rick.

  4. Vince Lammas says:

    Hi Rick,
    I have been reading your series of articles about self-employment and it’s about time the politicians recognised the “broad church” that self employment consists of. Perhaps, like yourself, I have been fortunate to gain the benefits of working independently before the recent economic crisis. I don”t know if that makes me more or less Pooterish🙂

    @ P Hearn – Freedom from the the constraints of large organisation “paralysis” is certainly a refreshing experience – but perhaps is not for everyone. People would probably enjoy it more than they expect – if they have appropriately marketable skills.

    I think I will claim to be in the “Independents” tribe – mainly because I like the freedom to contribute for clients and then step away – but also because it says I’m probably young! My aim, clearly, is to earn sufficient money to support a move into the “Dabbler” tribe.

    @P Hearn – I couldn’t work out whether Darren was in the tribe of Camden “Locals” or the regionally competing “Survivors” tribe of fluid-dynamic specialists. Maybe a look at his van would help.

  5. Pingback: UK: Self-employment – Not employees but not always business people either | Peak Jobs

  6. John Dowdle says:

    I am no expert on the ins and outs of benefit rules but my understanding is that a lot of people are signed-on as being self-employed because this makes them eligible for benefits they would not otherwise receive. Sometimes, they prefer lower “incomes” as self-employed rather than all the hassle that is associated with receiving job seeker’s allowance or similar benefits.
    You need a Job Centre expert to explain why it is more benificial to receive benefits as an apparently self-employed person rather than as an unemployed person.
    Of course, all these changes to benefit rules are designed to make comparison meaningless.
    This is why governments are able to make idiotic claims that suit their own political purposes.

  7. Noemi says:

    I wonder if “there will soon be more self-employed people than public sector workers” is just a a random correlation or indicates causation. The public sector is awash with self-employed “so called” businesses supplying services which in the bad old days were provided by public sector workers. Aside from making the books look good (pension liabilities etc..) this shift has caused untold damage to the public sector as loyalties have shifted away form serving the public (i.e. What is the best for the organisation, what services are required) to how can I ingratiate myself with the commissioner to ensure that my position and income remain secure.

    I would be interested in research on the organisational impact of public sector “outsourcing” to ex-employees. How do loyalties shift, what happens to the critical voices in organisation?

  8. Tammy Blyden says:

    Some people wind up self-employed because they are unable to find a viable job in their field. It is a tough road to hoe.

  9. John says:

    There is another aspect which has occured to me on this topic.
    I cannot remember the actual details but if state pensioners defer receiving their pension by saying that they remain in work, the amount of the pension which they will receive is increased and they become eligible for a lump sum payment of – from memory – several thousand pounds.
    I took up this option myself a few years ago, as I wanted to continue working as a community centre manager for an extra year or two while finding and training my own replacement.
    Again, from memory, the interest rate which is applied to the increased rate of the eventual pension is much higher than anything presently on offer from banks or building societies.
    So, for someone on the verge of official retirement who does not actually need income from a state pension immediately, it is a good investment opportunity to defer taking it and one can also plan ahead on the basis of receiving the lump sum too.
    Of course, being “self-employed” for a few more years presumably will qualify someone to receive the benefits of a deferred state pension.

  10. Pingback: UK: The self-employment capital of Western Europe | Peak Jobs

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