The more data we crunch about the self-employed, the more complex the picture becomes.
Ben Dellot has compared the earnings and assets of the self-employed. He found that households totally reliant on self-employment earnings are far more likely to have below average incomes than those where at least one person in the household is an employee.
This is true across all age groups, though particularly so among the under 25s.
This is consistent with what we know about self-employed incomes falling further and faster than those of employees.
But, despite their low levels of income, the self-employed are more likely to own their homes outright than those in other forms of employment.
The data on property wealth is slightly older than that on income. Some of this might have changed after the recent rise in self-employment. Nevertheless, the differences are of the scale that suggest the pattern is probably still similar.
We already know that the distribution of income among the self-employed is much wider than it is for employees. A lot of the self-employed are poor and a much smaller number are exceedingly rich. This has been the case for years and is true in most developed countries. As the OECD noted, when you add the self-employed to the calculation, the Gini coefficient shoots up.
That said, even though there are huge inequalities among the self-employed, the data suggest that there is an overlap between those with high property wealth and low income. If around 35 percent of self-employed only households own their houses outright and a similar percentage are earning below average incomes, it’s probable that some are doing both. There is a subset of the self-employed who are, as Ben says, cash-poor and asset-rich.
There is almost certainly an age dimension to this. Michael points out that, when you look at the number of people owning their homes outright, a higher proportion of those not in work at all do so than of those employed. The majority of these are retired people. It is highly likely, given the age distribution of the self-employed, that most of those who own their houses outright are also at the upper end of the age range.
As Michael says, that wealth has not necessarily come from self-employment.
The fact that people who are presently self-employed have a lot of wealth doesn’t necessarily mean that their wealth derived from self-employment or that the self-employed are more likely to save or invest. For many of them, their property and financial assets will have been acquired during employment as an employee. This won’t just be older people who have moved to self-employment as an alternative to retirement, but will also include 40-something employees who are financially secure enough to afford to strike out on their own. On their first day of self-employment they might own their property outright and have a fair-sized financial cushion of savings and investments, but none of their wealth will have derived from self-employment.
People can’t build up significant wealth if they have low incomes. If they are asset-rich and cash-poor, they must have been cash-rich at some point in the past. If their earnings are low, it is unlikely that they became asset-rich by being self-employed. More probably, it was being asset-rich that enabled them to become self-employed.
I wonder if some of what we are seeing here is the Old Rectory Syndrome. The origin of this term is obscure but the first time I saw it used was in an article in the 1980s attempting to explain the difference in work ethic between the UK and the US. I forget who wrote it but I remember the argument well. Americans, said the author, want to be rich. The British, on the other hand, want to be comfortably off. The Old Rectory, he said, was the pinnacle of British middle-class ambition. The Americans would work until they were rich but the British would stop working once they had achieved the lifestyle epitomised by owning an old rectory in a village or country town.
I can’t speak for the Americans but there is a certain truth in this about the British. The Old Rectory is, of course, symbolic. That won’t be everybody’s dream. But once they have what they consider to be a comfortable lifestyle, even high-earning Brits tend to call it a day. Property is key to this, be it an old rectory, a converted barn or a Scandinavian eco self-build. Once the mortgage is paid off, it leaves people free to go and do their own thing. They don’t need to earn much because the house, which used to gobble up most of their income, is now bought and paid for.
That last bit is important. It’s that bought-and-paid-for-ness that allows former corporate professionals to go off and find themselves. For many people, housing costs, or the lack of them, will have been a key factor in making the decision to go self-employed. The important thing is that the house has been banked and they don’t need to worry about it any more. Therefore, people can be property-rich, income poor and a lot happier.
There is an interesting implication here for advocates of a Land Value Tax though. An objection often raised against LVT is the poor widow forced to move out of the house she has lived in for decades because her income cannot cover the tax. But what if the poor widows are joined by a larger, more politically savvy group of income-poor freelancers living in houses they assumed they had paid for? If they have downsized on the basis of having low housing costs, having to pay a tax on the land under the Old Rectory is not likely to go down well.
At the moment, we don’t know how big a subset of the self-employed are asset-rich and income-poor. (The RSA is planning to do more research on this over the next few months.) It might only be a few hundred thousand. What we can be sure of, though, is that they will be a very noisy few hundred thousand. Another way in which Britain’s shifting labour market might change its politics over the next few years.