The self-employed are unhappy? Don’t believe the gripe

May 8, 2014 by
Filed under: Enterprise 

The Resolution Foundation published a report this week with a thorough analysis of how the community of self-employed people in the UK is changing – something we’re looking at ourselves at the RSA.

I’m glad to say that (more or less) their findings mirror our own. Here are the top-lines you should be aware of, along with some graphs I’ve nabbed from their report.

#1 The causes of the boom are partly structural, partly cyclical

The economic downturn unsurprisingly appears to have played some part in fuelling the growth in self-employment. The Resolution Foundation estimate that the jump in the number of people moving from unemployment to self-employment accounts for a quarter of the increase. That said, the authors also say there is something more structural going on here, indicated not least by the fact that self-employment has been growing pretty much year on year since the turn of the century.

Their Ipsos Mori survey shows that the vast majority (73 per cent) of people who became self-employed since the downturn did so partly or wholly out of personal preference. In other words, they weren’t pushed into it. The authors highlight an ageing population as one structural driver – and this is something pointed out by others – but there are likely to be plenty more long-term factors at play (technology, immigration, changing mindsets etc.)

#2 And life for the self-employed appears precarious

The Resolution Foundation’s analysis shows that real median weekly earnings among the self-employed have dropped by 20 per cent since 2006-07, whereas employee earnings have fallen by 6 per cent. The implication is that those who work for themselves now earn around 40 per cent less than their counterparts in typical wage work – a sizeable sacrifice for anyone considering going it alone.

The poll undertaken with Ipsos Mori finds that the self-employed also suffer other hazards outside of their business: 70 per cent don’t have a pension in place and 20 per cent say they face difficulties in accessing mortgages as a result of working for themselves.

earnings

 

#3 Yet the vast majority of the self-employed want to stay that way (even the new ones)

The third key point from the report is perhaps the most interesting. When asked whether they would prefer to be a typical employee, 28 per cent of those who kicked off their business in the years of the downturn (i.e. less than 5 years ago) said yes. This seems like a sizeable figure, and is substantially higher than the 11 per cent of long-term self-employed who said yes. But in another sense it is very low. Despite the low wages and other financial pitfalls, what we are saying is that close to three quarters of the newly self-employed are perfectly happy where they are (see graph below).

Of course, this presents a major question that remains unanswered – namely why so many people in such a position prefer to work for themselves. I’ve referred previously to this paradox as the ‘virtuous toil of self-employment’, and it’s something we’ll be unpacking when we come to launch our own report later this month.

 

resolution

Don’t believe the gripe

So the report is full of great and highly insightful findings. But what surprised us at the RSA was that certain commentators and newspapers appeared to have misreported the message, focusing largely on the negatives and ignoring the positives. For instance, when the Resolution Foundation released a preview of their results in April, most of the papers laboured the point that 450,000 of the newly-self employed want to return to wage work - yet very few (if any) said the remaining 1,250,000 are happy where they are.

Likewise, when the full findings were released earlier this week the Guardian opted for a strangely downbeat news item, complete with an accompanying picture of a Job Centre Plus office and a quote from a leading economist that self-employment is “the last refuge of the desperate”. Yet that’s not what the Resolution Foundation figures suggest at all. As shown above, the ‘last resort’ argument is only one part of the story, and a small part at that.

The reason why all of this matters is because inaccurate commentary of this kind risks creating a warped narrative around self-employment, which in turn informs whether or not people believe it to be a ‘good thing’, and whether it deserves being promoted and supported. This report (and our upcoming paper) both point to the need for a much more balanced debate – one that does not drown in the hyperbole of ‘entrepreneurship’, nor one that treats self-employment as the haven for the desperate and needy.

Once we’ve got that straight, perhaps we can turn our attention towards helping them achieve their full potential.

Comments

  • Rosemary Glass

    “Of course, this presents a major question that remains unanswered – namely why so many people in such a position prefer to work for themselves.”

    A few points in response:
    1. I am a self-employed person who loves their job and wouldn’t dream of going back to employed work. The fact that I earn less than I would if I was in paid employment is vastly compensated for by the fact that my needs are also less. Money isn’t the main measure of satisfaction. For example:
    a. I don’t have to spend money to compensate for working in a job that dehumanises me.
    b. I work in our front room, so no hours wasted in commuting.
    c. The buck stops with me. How empowering is that!
    d. If I need to take an afternoon off, I can.
    2. I suspect there is a bit of bias on the part of the investigators, who are probably employed and would like to stay that way.

    For me, self-employment is not the last refuge of the desperate but a way to take responsibility for myself.

  • Mark Hadley

    The picture is far more complex than we perhaps initially think. It’s not as simple as someone saying, I can’t get conventional employment, I think I will set up my own micro-business, there are key drivers, all of which are relevant, but seldom coherently expressed, why do people prefer in huge numbers to work for themselves, let’s have a guess based on my 35 years experience:

    1. You can (largely) agree when you work
    2. Single parents and mothers can still deal with children and have a business life
    3. You are free of the kiss-ass corporate structure
    4. You have control of your own tax affairs, which can be a major saving for most people but does require some accounting understanding
    5. Your income is yours, in your account, and you argue about tax and Ni etc., after the event, which employee does that??
    6. All those previous corporate structures are becoming a thing of the past, who needs a physical presence/office, you can be a virtual business just delivering services or products at point of sale
    7. You set your own hours for working, if you are cute, these will mirror your Clients needs
    8. You can pretty much get every business ‘service’ online in one way, shape or form, free of your organisations purchasing policy, minding the preference for your your bosses friends businesses, you can sidestep all the cost-inducing badges and gongs of corporate business and their over-puffed self-serving management systems
    9. The current UK market is the most disfunctional one I can remember, you can either be one of the ‘elite’ who went to the right schools, joined the right clubs and just popped into your elevated positions courtesy of your, or your parents connections, or you can be one of the ‘many’ all scrabbling for an unpaid internship to try and get a foothold on the corporate gravy-train, so no wonder, many young, talented and motivated young people are thinking – well, I might just go and do this for myself.
    10. As this tsunami of entrepreneurial talent sets up their yurts in the current business space, there is and will be a major shift in how we do business, there already is, the media are often quite keen to put this down on various grounds, but the reality is that the old business structures are effete, just no-one has told them yet.
    11. Younger people are less motivated than previously, I think, with remuneration, there has been a sea-change towards ‘work life balance’
    12. Parents are continually bombarded by media, politicians etc., and the edifices of state on why they shouldn’t all be working 24/7, having all their kids in childcare, all adding to the GDP – but of GDP for what? this measure is outdated and useless in a modern economy, and which economies do we respect and value, China, Korea, the USA…. frankly if those are the role models they are all flawed, sorry massively flawed
    13. Self-employment, despite the fact that on the face of it, those engaged are earning less than their ‘employed’ counterparts by approx 20% are not factoring in all the costs of being employed – taking your holidays when the organisation feels it is most convenient for them, attending a specific location, commuting costs etc.
    14. Large employers just can’t cope with the fact that someone wants to work 25 hours a week, during school hours without having to pay childcare costs, that you might just, just need to take a few hours off because one of your kids is sick, or both of them, or the teachers are on strike, or you need to pop out for 30 minutes to check you mum is OK in her flat, they just can deal with that flexibility, which of course if what, sometimes, self-employment allows you

  • Paul Smith

    I’ve heard the phrase ‘self unemployed’ middle managers and above who have lost their jobs but who wouldn’t dream of describing themselves as unemployed or claiming benefits. They have set up firms with themselves as the Chief Executive and posted details on their linkedin accounts. However these companies are often little more than a marketing ploy to avoid a gap in their CV and to protect their dignity.

  • Rosemary Glass

    Another ingredient in the story – the opportunities provided by the internet. I could not have set up my business without it. It lowers the hurdles for entry into the marketplace and enables me to make my product/service available without having to seek the approval of any existing institution (large retail outlet/service provider). I wonder how many small businesses owe their existence to this.