What's behind the 367,000 new self-employed people?

It could be an outbreak of entrepreneurism, tax avoidance, or maybe just plain old unemployment

The strength of the UK labour market has been an on-going puzzle. Despite a 4 per cent drop in GDP, employment has risen, and more people are in work than in 2008. Yet the rise hasn’t been in full-time employee jobs. Part-time work has accounted for some of the increase, but most of it has been a result of self-employment. New figures released today (6 Feb) by the ONS show self-employment has grown by 367,000 since 2008, with the trend most pronounced amongst males and older workers.

So what’s behind this trend? There are a number of possible explanations. Ministers will no doubt claim it as a resurgence of entrepreneurialism, with new companies emerging from the ashes of the old economy. Yet this is unlikely, and few of the newly self-employed will be starting the Facebooks of tomorrow: 66,000 fewer self-employed workers are actually employing staff.

A second potential culprit is the Work Programme. Long-term unemployed jobseekers may be encouraged into self-employment by providers who are incentivised to get them off Jobseekers Allowance. However, this effect is unlikely to be significant enough to explain the overall trends: ERSA estimate that only 10% of those who have found work have entered self-employment. Assuming around 300,000 job starts, only 30,000 will be self-employed (even if all survive in self-employment).

A third explanation may be more significant: firms are shifting workers onto self-employed contracts to avoid paying National Insurance, holiday pay and benefits. Yet while such contracts are increasingly used in construction, the explanation doesn’t quite fit with the characteristics of many of the newly self-employed. Research by the TUC shows that the biggest rise in self-employment has been in professional occupations.

This leaves a fourth culprit looking increasingly guilty: the weak economy is pushing workers into self-employment. The evidence fits. Underemployment amongst the self-employed has increased from 6.4 per cent in 2008 to 10.8 per cent in 2010, and is now slightly above the rate for employees. So while some will find self-employment a good way to earn a living, for others the situation is decidedly bleaker. Professionals don’t want to be unemployed, so they become “self-employed” as a way of saving face.

The rise has been most pronounced for older workers, which is perhaps not all that surprising since this is the group with the most contacts, experience and start-up costs to move into work on their own. Some will also be deferring retirement to avoid the low value of pensions. Others will find self-employment an attractive alternative to a tough formal labour market.

So why does the rise in self-employment matter? Surely self-employment is better than unemployment?

Yet self-employment can be tough – many will be building up debt as they scrape along. And later this year, Universal Credit will be introduced. It will assume that the self-employed earn a certain amount, regardless of whether this is actually the case. Those with low incomes in self-employment will find they lose benefits. For many workers now, self-employment is tough. But it is likely to get tougher in the future.

Photograph: Getty Images

Neil is the Senior Economist at The Work Foundation

 

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Work with us: Wellcome Scholarship at the New Statesman

Be one of our 2016 science interns.

Britain needs more great science writers – particularly from backgrounds which have been traditionally under-represented in the media.

To address this, the New Statesman and Wellcome Trust, in partnership with Creative Access, have come together to offer annual placements to student or graduates from an ethnic minority background*.

The final 2016 placement will take place this Autumn/Winter (the exact date is flexible) and will last for four weeks.

Over the course of the placement, the successful applicants will:

  • Work alongside the New Statesman web and magazine team, learning about the editorial and production process, and how articles are conceived, written, edited and laid out;
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Over the course of the placement, you will be paid London living wage.

To apply for the placement, follow the steps below and apply direct to the New Statesman. 

Please write an 800-word blogpost on a recent or upcoming scientific development which you feel has the potential to change lives significantly, explaining clearly and concisely what stage the research is at, and how it is likely to proceed. It should be written as if for the NS audience - interested, intelligent laypeople.

Please also write up to 200 words on why you are right for this placement and what you would hope to get out of it. You don't need to send a CV.

Please only use Word files, or paste your text into the body of an email. 

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Applications close on 30 September 2016. Interviews will take place soon after.

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