Belfast Telegraph

Upward trend of self-employed has analysts asking questions

By Ben Chu

Through the traumatic months of 2011 and 2012 when the economy flatlined, David Cameron and George Osborne hugged data releases from the jobs market like a comfort blanket.

Job creation surged upwards even as the economy went nowhere, giving beleaguered ministers something positive to cite in speeches.

And the growth in the jobs market was largely driven by burgeoning self-employment. Around four-in-10 of the jobs created between the formation of the Coalition in 2010 and the beginning of last year were in this category.

But self-employment has not been merely a stagnation story.

Since the recovery finally kicked in last year, there have been further stunning gains in the number of people classified as working for themselves.

The total number of self-employed has now hit 4.5m. That's around 15% of the workforce and the highest self-employment ratio on record. Analysts are now vigorously debating the significance of this explosion in figures.

What does this trend tell us about the state of the economy and, indeed, our society?

Minutes from the most recent meeting of the Bank of England's Monetary Policy Committee showed the experts of Threadneedle Street grappling with this question. Does the trend represent, they pondered, concealed unemployment and therefore temporary 'slack' in the economy? Or is it a permanent structural change in the labour market? To put it crudely, the former strengthens the case for keeping interest rates on hold for longer, while the latter supports a hike.

Members of the MPC, the minutes related, hold a "range of views", which is a polite way of saying they disagree. And no wonder. The evidence informing this debate is ambiguous and fragmentary. For one thing, it is unclear as to what is driving the trend. Demographics seem to be part of the story. The surge in self-employment has coincided with a glut of baby-boomers reaching retirement age. Anecdotally, many of us know people from this generation who have quit full-time jobs and set themselves up as consultants. And the statistics show over-65s are more likely to be self-employed than other age groups.

But this is unlikely to be the whole story. The self-employment surge also coincided with benefits reform by the Coalition.

The number of women entering self-employment has been particularly striking. While historically they have accounted for 30% of the total, since 2007 they have represented 60%.

An important question, then, is: how comfortable are people with being self-employed? A recent survey by the Resolution Foundation think tank found three-quarters of those entering self-employment in the past five years were happy to be their own boss. But that still left a quarter, around 450,000, apparently hankering after a job in a firm.

There seems to be under-employment too. Around half of the newly self-employed of the past seven years are part-time. And the proportion of people working part-time who would like to work more hours is around 18%, up from around 10% before the financial crisis.

The Resolution Foundation estimates that the median self-employed salary is £12,000 a year. That is only just higher than the minimum wage, implying that living standards for a large number of people have been battered.

There are other vital economic questions too. How will the fact that one-in-seven of the workforce is self-employed, impact on consumption? Can people be expected to spend less and save more if their income is more precarious?

There are implications for tax revenues here and, indirectly, the levels of public sector spending that Britain can afford.

Some regard the rise in self-employment as an encouraging trend, suggesting it indicates a blossoming of entrepreneurship among former wage slaves. Researchers at Morgan Stanley, however, doubt this, and point out that the number of self-employed individuals who have staff has fallen by around 10% since 2007.

Others describe the 'job for life' expectation of the post-war years as a historical aberration, now giving way to the rise of 'portfolio careers'.

Trade unionists, on the other hand, fear the surge in self-employment is part of the pernicious casualisation of the workforce. The TUC argues firms have been sacking employees and hiring them back on temporary contracts to avoid the cost of pensions or the hassle of employee rights.

Is the age of the traditional employee over? Are we turning into a nation of empowered entrepreneurs? Or will the new-born army of self-employed flow back to their old desks and workplaces as the economy returns to full capacity?

It is hardly a satisfactory answer when so much is at stake, but only time – and more data – will reveal the answers.

Belfast Telegraph

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