Will the low-paid self-employed undercut the minimum wage?

The monthly ONS employment figures published this week showed the number of self-employed continuing its gentle decline from last summer’s peak. The improved employment situation and rising wages are probably tempting people back into employee jobs.

A couple of reports were published earlier this month containing more evidence of the collapse in self-employed earnings. The Resolution Foundation’s Low Pay Britain 2015 report found that over half the full-time self-employed are earning below two-thirds of median weekly earnings. The self-employed are way more likely to be among the low paid than those in employment.

The findings in New Policy Institute’s report Who are the self-employed? were just as grim. Since the recession, self-employed median income has fallen below the 25th percentile income for employees.

The NPI also found that most of the increase in self-employment over the past decade has been among those without any income from other sources.

As Michael pointed out earthier this year, most of the self-employed have no other source of income and their earnings tend to be very low.

It is not surprising, then that relatively few of the self-employed any pension savings.

Of course, the new National Living Wage (NLW) won’t apply to the self-employed so the gap between their earnings and those of employees likely to keep getting wider. That raises another question. Will employers who don’t want to pay the NLW start offloading work onto impoverished contractors who will undercut even the minimum-waged? Might we see more self-employed van drivers, warehouse staff, waiters and care home workers?

While some employers have welcomed the NLW, there will be others who are already thinking of ways to get around it. Last year, the Economist remarked:

[T]he economy may have created a vast reserve labour force, akin to the “spinsters” of early 19th-century Britain—single women who were paid piece rates for spinning textiles at home—or the dockers who used to mass outside port gates in the hope of being selected for a day’s work. That would suggest an economy where wages are permanently kept under pressure and where profit margins remain high.

That vast and poorly paid reserve labour force may prove too tempting for some employers once the minimum wage starts to rise. We may yet see another increase in the number of self-employed over the next few years.