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Self-employment: just the job

or a working compromise?

6 May 2014

#selfemployed

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After a late-1990s/early 2000s dip, self-employment has grown steadily

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The pace of the increase has sparked debate on what it reflects about the labour market and the recovery

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• Is this part of a long-term shift towards higher levels of self-employment?

• Or is it due to cyclical factors with the state of the economy driving most of the uptick?

• And how have the self-employed fared financially in recent years?

• Doesn’t consider: – impact on wider economic performance e.g. productivity,

investment, innovation– policy implications - forthcoming RF work will touch on

some issues raised here

What explains this growth and what does it mean?……………………………………………………………………………………………………..

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Growth across the UK but mixed role in regional labour markets

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The self-employed pre- and post-recession haven’t changed but more likely than before to be female and work part-time

2005 2013

25% 27%

2005 2013

38%42%

No qualifications

2005 2013

12%

8%

2005 2013

9%

5%

Aged 50+

2005 2013

23%

28%

Working part-time

2005 2013

27%30%

2005 2013

49% 49%

Female

2005 2013

24%27%

Time-series cover 2005-2013, green lines represent self-employed, pink lines represent employees

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A rise in people describing themselves as freelancers but they still make up a minority (14%) of the self-employed

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So what explains the growth? A combination of more new entrants and fewer leaving self-employment

Decline in rate at which people leave accounts for 28% of overall self-employment growth with rising entrant rate explaining 72%Same ‘leaver’ rate decline not seen among employees

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• More new entrants– 1/3 of the rise from Q1 2010 – Q3 2012 accounted for by

an increase in proportion moving from unemployment into self-employment rather than becoming employees

– Otherwise, they don’t look very different, just more of them

• Fewer leavers – Ageing and expanding workforce– Running down their hours and/or earnings

• Structural and cyclical elements are involved in both

What explains the changing flow rates?

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Underemployment has increased across workforce but more so for the self-employed

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Since 2005 SE have switched from being far more over-employed to under-employed

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Great maj still prefer being self-employed but less of a first choice for those who became self-employed recently

Became self-employed because no better alternatives for work

Would prefer to be an employee0

5

10

15

20

25

30

27% 28%

10% 11%

Less than 5 years 5 years or more

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On earnings, self-employed have been much harder hit – typical S-E now earns 40% less than typical employee

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2-in-3 self-employed not contributing to a pension and sig minority face difficulties with mortgages / credit

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• Clear evidence of a structural trend…– Expanding and ageing workforce– No new genre of post-recession self-employed worker

• And of cyclical factors– Big increase in inflow from unemployment– Underemployment higher among self-employed than

employees– Significant minority would prefer to be an employee

What does this tell us?……………………………………………………………………………………………………..

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• Higher levels of self-employment here to stay but rapid rise we’ve seen lately seems highly unlikely to continue

• General concerns about self-employed finances– Issues accessing mortgages and credit– Far less likely than employees to have a pension

• Suggests some slack hidden in strong self-employment figures– Relevant consideration for when interest rates should

rise• Future RF work will consider wider policy issues: tax,

mortgages, pensions and Universal Credit

What are the consequences?

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#selfemployed

@resfoundation