Self-employment and public employment edge closer

In the melee of the run up to Christmas, a couple of items in the ONS employment stats release passed without much comment. Firstly there was a rise in the number of self-employed people. As expected, self-employment fell once the recovery in employee jobs got underway. At least, it did for a while but it has been creeping up again recently. It’s now just short of its mid-2014 peak.

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Chart by the Resolution Foundation

It is too early to say whether this has anything to do with the impending rise in the National Living Wage but there is certainly a lot of nervousness about the NLW among employers. The Engineering Employers Federation said this week that a fifth of the firms it surveyed were expecting job losses as a result. A recent report by the Resolution Foundation found that the NLW could affect a quarter of workers in some cities by the end of the decade.

As if that isn’t enough, as Jolyon Maugham pointed out earlier this week, for every £100 a company pays and employee it costs £26 less in national insurance to pay the same amount to a freelancer. These days, the freelancer probably doesn’t earn as much in the first place. Not being covered by the NLW, the gap between self-employed and employee pay is likely to get wider. It would be surprising, therefore, if some employers were not thinking of ways they could replace their NLW employees with cheaper freelancers.

Then there’s the zeitgeist thing, of course. Self-employment is fashionable at the moment. Lots of people think it sounds great and they would be really good at it. That, too, may be helping to keep the numbers up.

Whatever the reasons behind the recent rise, it is reasonable to assume that self-employment will stay high for the next few years, even as the number of employee jobs increases.

Released on the same day were figures showing public sector employment at its lowest since the ONS started counting at the end of the 1990s.


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Ben Dellot reckons the self-employed will outnumber those working in the public sector sometime towards the end of the decade. I had a bet with him because I still don’t think they will. Now that the chancellor has downgraded his public service cuts from utterly insane to might just be doable, the job losses in the public sector will probably be less severe than we once thought.

Either way it will be a near thing though. If the lines on this graph don’t meet or cross over, they will come very close. Over the next five years, public sector employment will continue to fall and self-employment, while it might not rise by much, it probably won’t fall by much either. A high level of self-employment, by historical standards, seems to have become a feature of the 2010s labour market.

Self Emp and Pub Sec wkrs Source: ONS

This is a significant shift in the make up of the UK’s workforce over a relatively short time. Fewer people with reasonable job security, final salary pensions, employer funded training and, for the most part, stable earnings. More people with irregular work, inadequate pensions, low levels of training and falling incomes. Aside from the economic implications, there may also be a political shift. If the self-employed are as big a constituency as public sector workers, how might that change our politics? Will we see a more individualistic and less collectively minded culture or might the self-employed start to act collectively to prevent their pay rates being hammered down? Might they start calling for government action to make their lives more liveable?

It is unlikely that either of these trends will reverse in the next few years. By the end of the decade the self-employed will make up a roughly similar proportion of the workforce to those employed in the public sector. If it’s a little bit more I will be buying the beer, if it’s a little bit less, Ben will. Whichever of us is up at the bar, though, the balance of the UK’s workforce will have changed, probably for the long-term.

Update: Michael O’Connor wonders whether changes to in-work benefits might reduce the number of people in self-employment. Less generous terms may discourage some from starting up, while others may find that they simply can’t afford to be in business any longer.

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9 Responses to Self-employment and public employment edge closer

  1. JohnM says:

    You may be surprised by the amount of “freelancers” working in local councils. Many of who were previously employed there and made “redundant”!

  2. I suspect John M is correct – some of the simultaneous rise in self-employment and fall in public sector employment is due to re-classification, eg,public bodies reducing their employment headcount via redundancy and then engaging the same workers under self-employed contracts.

    It is certainly true in National Insurance terms that it is cheaper for an engager to engage a worker on a self-employed contract rather than under a “PAYE” contract, though I am not convinced by the figures Jolyon cites.

    In other respects, the gap between self employment and employment status is becoming increasingly small; as the trend in recent years is for employers to transfer risk from themselves onto employees via zero-hours contracts, prohibitive employment tribunal costs, high unemployment levels, and ever weakening trade union rights. In this respect, the issue of self-employment versus employment is becoming increasingly “academic”.

  3. Florence says:

    Many self-employed will find themselves in trouble pretty soon, when the Inland revenue (Tax Credits) will assume that every self-employed person is earning the equivalent of a full time job at NLW. Many will lose access to all working benefits, and will not be able to live. They will be classed as “failed” businesses if they do not earn this much. Many who have been pushed into faux self employment to massage the unemployment figures who are simply unable to earn enough to live on will be cut off, and unable to claim unemployment benefits because of their NI records.

  4. Phil T says:

    How big would be the effect of transferring RBS back to the private sector?

  5. David Rose says:

    What follows is necessarily rather oversimplified. The whole issue of how much self-employment is ‘genuine’ and how much ‘constrained’ or ‘faux’ (i.e. really employees forced into ‘self-employment’ by either an employer or the state as discussed by Florence) is of some significance to my research concerns. Any data on this? I suspect not. But when we update the National Statistics Socio-economic Classification for the next Census (NS-SEC – see http://www.ons.gov.uk/ons/guide-method/classifications/current-standard-classifications/soc2010/soc2010-volume-3-ns-sec–rebased-on-soc2010–user-manual/index.html), measuring genuine from constrained self-employment is going to be one of a number of problems we’ll have to confront, along with other issues associated with increasingly flexible labour markets such as those mentioned by theuxbridgegraduate. We hope to be organizing workshops that examine how employment relations are changing and how they might now be measured in a survey such as the LFS. Get in touch via dough3008@aol.com if you’re interested in these issues and might like to attend one of our meetings. Rick’s input would be most welcome.

  6. Dave Timoney says:

    “Will we see a more individualistic and less collectively minded culture or might the self-employed start to act collectively to prevent their pay rates being hammered down?”

    The evidence since the 80s is that the self-employed will organise, but mainly among the well-paid (e.g. IT contractors) and with a focus on tax-avoidance rather than on negotiating better rates with employers.

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