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.

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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.

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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.

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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.

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

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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.

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4 Responses to Will the low-paid self-employed undercut the minimum wage?

  1. Metatone says:

    Yes they will.
    Yes businesses will continue to go for loopholes the way City Link did.
    Yes the government will continue to enable this.

    Yes, the government’s political strategy is to build a society of insiders and outsiders (ironic given that the call for “reform” in places like Spain & France from economists is always predicated on there being “insiders” in secure jobs and “outsiders” locked out.)

    Yes this is the endgame of Hartz IV in a different guise.

    The best bit of course is that because of how the “self-employed” are taxed, then the government can talk about “tax cuts for the self-employed” to get votes and then use them to cut the top rate of tax.

  2. Pingback: Will the low-paid self-employed undercut the minimum wage? | Flip Chart Fairy Tales | sdbast

  3. Feelgutted says:

    I am 60. Female and single. I am self employed doing cleaning and ironing jobs. Work is very hard to find. I was swindled out of my retirement pension and must now work until 2021! This is not what I planned for and adding figures up, having worked for much more than the required 40 years to qualify find myself in a catch 22! I estimate that the government has made over £50k from me by extending my retirement age!
    I rely on working tax credits to top up my earnings. However, this is also being taken away from me. Minimum wage doesn’t effect me. Many employers don’t want to employ older people. How can I live on appprox earnings of £3600 a year? What and who will help me?

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