Self-employment boom: Good or bad?

carpenter Does more self-employed people mean more skilled workers for the economy?

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Britain now has more people working for themselves than ever before.

As of the last quarter of 2013 some 4.3 million of us earn our own crust and are officially self-employed.

This represents a pretty stonking increase. Though there was a slight trend upwards for many years in the early to mid-2000s, the number of self-employed has increased by 573,000 since the recession of 2008-09 - a rise of 15%.

Interestingly, over 60% of this increase has actually taken place even more recently - from around the middle of 2011.

UK self-employed workers (1,000s)
Chart 1

The net result is that a staggering one in seven of the workers in this country are now working for themselves.

It's something that has passed relatively unnoticed but it is worth considering how much more negative the overall unemployment picture would have been had it not happened.

The HR professionals body the CIPD estimates that the rise in self-employment has compensated for around 40% of the loss in employee jobs.

Had that not happened we could have seen unemployment nudging three million, with unemployment for women, who represent more than half of the self-employment growth since the recession, taking the brunt of that.

And the trend shows no sign of abating - if anything it seems to be getting stronger.

Compared to a year ago the Office for National Statistics (ONS) says there are now 395,000 more people in employment overall.

Of that, some 273,000 are employees, i.e. people working for firms or public sector bodies. That means that some 150,000, or 38%, are self-employed.

job centre The rise in self-employment has helped unemployment fall

If we look at the gains in recent quarters the trend is even starker. In the latest quarter's data around three quarters of the 193,000 increase in people in employment comes from people employing themselves.

For some this will be a cause of jubilation, proof that the UK is more entrepreneurial than ever before.

Indeed there are signs that the UK's more flexible labour force has more room these days for freelancers and people starting their own businesses which can only be a good thing.

But others say the speed at which the rate has increased in such a short time it is proof that our recovery isn't creating the jobs that it ought to be, and the jobs market remains insecure.

Break with the past

Whatever your view there is no doubt that this is a major change in the manner in which our economy operates and in how its recent recovery has come about.

For a start the trend might mark a divergence from how our economy has recovered from recession in the past.

If we look at the recession in the early 1990s, for example, we see that self-employment declined as firms began to hire again.

Although the UK economy is now recovering strongly that doesn't seem to be happening to the same extent.

And this surge in self-employment may be part of the explanation for two of the UK's big problems right now: productivity and low wages.

As several studies have shown, the self-employed have had an even tougher time in recent years with their real wages falling faster than those of employees.

The growth in self-employed workers might feed into our underemployment and productivity problems.

Whereas more than two-thirds of self-employed people work more than 30 hours a week, it's estimated that of those who have become self-employed since the recession, 88.8% work less than 30 hours a week.

Now this may because they're earning enough money to work less or (probably more likely) that many can't secure enough employment to work more.

This feeds into an overall underemployment problem in the British economy where 18% of people who work part time say they would like to work full time.

Part-time workers who would like to work full time (%)
Chart 2

Some have also expressed concern that the sort of jobs the new class of self-employed are involved in simply aren't as productive as those which the self-employed have historically done.

For example, although skilled trades-people - typified by so-called "white van man" - have the single largest share of self-employment (almost 30%), their numbers have actually declined since the start of the recession.

Compare this to the big increases in those employed in "personal services" (often low-skilled employment), administration or "elementary occupations" which have all seen increases of 33-37%.

Interestingly, there has also been a 26% increase in the number of "managers and senior officials" becoming self-employed.

Some have speculated that this represents a trend in managers going freelance, typically from the public sector into consultancy.

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