The evidence proves self-employment is great. Celebrate it!

April 20, 2014 by
Filed under: Adam Lent, Enterprise 

Last week the TUC published research which they said showed that “while some choose to be self-employed, many people are forced into it because there is no alternative work”. In fact, that “some” who choose to be self-employed turned out to be no less than 72% of all self-employed people when the Resolution Foundation released the findings of their survey a couple of days later. This accords very closely with the RSA’s own survey (full results to be published soon) which found that 76% of people in self-employment or running their own micro-business were happy with their work situation.

That, of course, still means that around one quarter of self-employed people are either in that position because they cannot find a directly employed job or because unscrupulous employers may have forced them into that position to avoid tax or employment rights. We can expect many of those in the former position to find a better work situation as the economy continues to recover while the latter must rightly be addressed by HMRC and other legal authorities. But the unions are making a mistake if they overlook the fact that the great majority of the growing ranks of the self-employed are happy in that position even if they don’t possess all the formal rights or better pay that comes with direct employment.

Some may argue that the two surveys could have missed out those on very low wages forced into self-employment who could be less likely to take part in a poll. Fair enough. So let’s take a look at the wider economic data.

If self-employment is largely the result of people not being able to find direct employment then it seems to me that you would expect to find higher levels of self-employment in the regions of the UK with the highest proportions of long-term unemployment. In fact, as the chart below shows, there is a general pattern revealing that self-employment is higher in those UK regions and nations that have lower long-term unemployment.

long term unemployment

Maybe it’s just that with more of the jobless going into self-employment, levels of long-term unemployment have fallen in various parts of the UK. The problem with this, however, is that the higher the level of self-employment, the healthier the region economically. The two charts below plot self-employment against output and against productivity. There is a pattern showing that both output and productivity tend to be higher in those areas with a higher self-employment rate.

GVA per head

productivity

In short, it seems unlikely that self-employment is primarily the result of desperation if it is more common in the best performing parts of the UK. This also adds further evidence to the point I made in my last post about higher levels of self-employment not necessarily being a sign of an under-performing economy.

So while acknowledging that there is a sizeable minority forced into the position, we should actually celebrate the rise of self-employment. It is a sign of a healthier economy and greater entrepreneurial spirit. It allows people to be more autonomous and turn their own ideas and vision for themselves and others into reality – something the RSA has always held dear and which we now call the ‘power to create‘. We know from our own research that it is this capacity to be self-determined and creative that the self-employed value enormously and which greatly outweighs the fact that they may earn less than they would in a directly employed position.

Rather than turn the rise of self-employment into a negative, I would suggest the union movement develops ways to enhance the earning power of this growing  portion of the workforce so they can enjoy their autonomous creativity and be well-rewarded simultaneously.

 

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Comments

  • Erika Watson

    Good article. I think your conclusion sums up the real issue – how cna the earning power of this growing portion of the workforce be enhanced?
    There should be a role for unions and some, like the Musicians’ Union
    are already doing excellent work for freelance members. (I’ve blogged more about unions and self-employment here: http://greenwellconsulting.co.uk/trade-unions-for-the-self-employed/).

    There is also a role for government in creating the conditions for this growing portion of the workforce to establish sustainable incomes. The decline in self-employed incomes isn’t just an individual issue. The
    tax contribution from self-employed people was down £2.7 billion in 2010-11, despite the increase in the overall numbers of people in self-employment. The debate needs to move beyond whether self-employment is a good or bad thing – and onto how we can make it work better for individuals and the broader economy.

  • Metatone

    The boosterism really needs tempering here.
    Go read the Yorkshire Ranter for a good model on why we should be more sceptical about the figures.
    Then stop and think about how self-employed people who like self-employment despite lower pay would fill out the survey if they’d recently had an illness or other difficulty that wouldn’t bother them overly if they worked for the RSA, but was enough to put their own micro-business into serious trouble…