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18 October 2016updated 04 Sep 2021 2:33pm

Self-employed workers earned more in the 90s – now another pay squeeze looms

Brexit negotiators should not forget the self-employed. 

By Conor D'Arcy

When people talk about “the self-employed”, there are a few images that spring to mind. Maybe it’s a white van man, someone running a small business or a freelance consultant.

The growth of self-employment over the past decade and a half has been astounding. The 45 per cent growth since the turn of the turn of the century to almost 5m workers today means soon there could be more self-employed workers than public sector employees. Clearly there’s something attractive about going it alone. But for all this flux, one thing hasn’t changed – how much they earn. Indeed typical returns to work are lower than they were 20 years ago. What explains this?

One critical factor is the kind of the people who are self-employed. Think back to those archetypes of the self-employed. Today these are far fewer Richard Bransons – long-hours business owners employing staff of their own. Increasingly, the image of a modern self-employed worker is an Uber or Deliveroo driver working for themselves, or indeed a smartphone app. However, the column inches devoted to these workers tends to overstate how big the gig economy compared to self-employment as a whole.

If today’s self-employed are simply less overworked than those in the past then we shouldn’t worry too much about why their earnings have stood still. But since the financial crisis, self-employed earnings have been weak even on a like-for-like basis. Typical earnings fell by £100 a week between 2006-07 and 2013-14 – a far more dramatic fall than the pay squeeze that employees experienced. Their earnings have recovered somewhat in the last year, but are still 15 per cent down on 1994-5. 

The changing status of self-employment therefore goes hand in hand with this troubling picture on pay. The extent to which some self-employed workers really are ‘working for themselves’ is hotly debated. The current High Court case surrounding the employment status of Uber drivers is potentially a landmark one for the future of the gig economy. The fear is that for some of these workers, the much-vaunted independence of self-employment is an illusion. 

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Unsurprisingly, politicians have been keen to woo this growing and potentially insecure part of the workforce. We’ve seen changes to their taxes, and we may see more in the Autumn Statement. Even more significant is the review of employment practices led by Matthew Taylor, which could be an important step forward on this agenda. 

We shouldn’t lump all the self-employed together as disgruntled gig workers. For those who should properly be considered self-employed, laying the groundwork for more productive, thriving businesses is vital. Most of the self-employed are happier not being employees, and they should be helped to develop their enterprises. 

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And arguably it’s these kinds of self-employed people who should be on government’s radar as the Brexit process rolls on. It’s important to remember that the self-employed are not a homogeneous group, so the impact will vary from sector to sector. But a key lesson from recent years is that the volatility of their earnings means that they’re often better placed to ride the crest of an upturn, but equally are more exposed to downturns. So the news today that we could see a fresh pay squeeze next year is a concern as it could be felt even more acutely among our growing army of freelancers, business owners and gig economy workers.

Today’s labour market is a rapidly shifting one, and our default assumption of what a self-employed person looks like today may be very different five years down the road. The challenge for policymakers is to respond to that in a flexible but meaningful way.

Conor D’Arcy is a policy analyst at the Resolution Foundation.