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Ian Brinkley
Economic Advisor
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Ian Brinkley

Self-Employment – Entrepreneurial Dawn Or The End Of Secure Jobs?

Authors: Ian Brinkley

15 April 2014

The TUC’s report released today in advance of this month’s labour market figures highlights the growth of self-employment in the labour market recovery between 2010 and 2013.  The TUC’s main concern is that the growth of self-employment is creating more low income and insecure forms of employment and that many people are turning to self-employment as the only alternative. This is certainly plausible, but is it true?

The report does not offer much in the way of direct evidence. An analysis by Richard Murphy from tax returns suggested that the average incomes of the self-employed plummeted between 2008 and 2011. They may have recovered since, as a recent ONS analysis shows that since 2011 a much bigger share of self-employed jobs involved more than 30 hours a week. Yet there some important questions here about the changing nature of self-employment and its role in the quality of job generation.

Firstly, is it just more of the same, with the rise dominated by traditional manual trades or a shift towards the higher skilled white collar professional end of the jobs market? Secondly, is the expansion at the expense of employee jobs, as people turn to self-employment because no other opportunities exist? Thirdly, is it happening in all regions or just some?

Our own preliminary analysis uses a slightly different measure to the TUC. We wanted to look at both the sectorial and regional angles and so have used workforce jobs, because it is a better measure for sectors.  We have looked at changes between March 2010 and September 2013 for sectors and between September 2010 and September 2013 for regions because the latter is seasonally unadjusted.

The  biggest single contributor was in more knowledge intensive service sectors such as professional, scientific, and technical, information and communication services, education, arts and entertainment services, and financial and real estate services between them account for 33 per cent of the overall increase. In some of these sectors, self-employment has rocketed-up between 30 and 50 per cent in real estate, arts and entertainment and other services. In contrast, there was relatively little growth in some low pay industries such as hospitality and distribution. More traditional sectors such as manufacturing and construction provided just over 25 per cent.

Most industries include pockets of low pay work and even in industries where pay is above average an involuntary shift to self-employment might still mean a fall in income. A more refined analysis could produce a different picture. But at this level of analysis, the industrial mix story does not on the face of it look very supportive of the TUC’s concerns.

However, in manufacturing, construction, and other services the rise of self-employment went alongside a decline in employee employment. Across these industries self-employment went up by 178,000 but employee employment declined by 115,000. We do not know from these figures whether people are moving status voluntarily – for example, tax reasons or a desire for independence - or whether it is involuntary because there are no regular jobs. But it is clearly more likely that some of the moves will be forced in sectors where conventional jobs are in decline.

We had a look at changes across regions. The most striking feature is the more modest contribution of self-employment in the jobs boom in London, the South East, and Eastern regions. The rise of self-employment contributes about 22 per cent of the overall increase in jobs, about half the national average. In contrast, we have seen much bigger increases in the North East and the Midlands. And while there is no clear-cut pattern, in some regions a sharp rise in self-employment has been accompanied by falling employee employment. The most extreme example was in the North East where self-employment grew by 23 per cent or 26,000, but employee employment fell by 44,000. It looks as if the TUC’s concerns are more likely to be reflected in some regions than others.

What this story illustrates is how poorly we understand some of the dynamics of the labour market when it comes to self-employment and what the implications are for future job generation, job quality, insecurity, and productivity. The TUC report includes a fascinating detail, that according to the Labour Force Survey some 480,000 self-employed people said they were freelancers. A wider definition used by the Freelancer and Contract Services Association puts the figure at 1.3 million. We have of course already got a continuing debate about how many people are on zero hours contracts. Accurate mapping of the boundaries and composition of the UK’s contingent workforce remains a challenge.