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Is the self-employment boom here to stay?

Is the rise in self-employment in recent years due to a lack of traditional work opportunities, or has a structural change taken place in the economy? A new report by the Resolution Foundation aims to provide the answer.

Government data shows that the number of people choosing to become self-employed has increased significantly since the recession. Whereas the number of people in ’employment’ has finally returned to its pre-recession level, the number of self-employed has grown by over 650,000 over the past 5-6 years, making up 15% of the entire workforce.

Some commentators believe that the increase in self-employed numbers is a result of cost-cutting across the economy, and a lack of traditional employment opportunities – perhaps an indicator that the recovery is built on ‘shaky ground’, rather than anything more substantial.

Others, the report notes, suggest that the change is something to be celebrated, and a long-term structural change.

By analysing employment data, and the results of a survey of 1,000 self-employed people, the Resolution Foundation found evidence that both structural and cyclical elements can explain the massive rise self-employment, particularly since 2008.

Structural reasons

  • The characteristics of the self-employed don’t appear to be changed significantly since 2008 – workers in both employment and self-employment are increasingly better educated, and more likely to be working in the service sector.
  • There are simply more self-employed than in 2008.
  • 28% of the rise can be accounted for by people working longer, and people opting to continue working for themselves upon retirement.
  • Around three-quarters of people who began working for themselves after 2008 did so out of preference, rather than being forced to do so (perhaps as a result of losing a job).
  • Even before the recession hit, there was already a significant rise in the number of freelancers, and ‘one man bands’. This phenomenon wasn’t created by the downturn.

Cyclical reasons

  • Although the report notes that structural reasons for the rise in self-employment dominate, there are also some cyclical reasons which help to explain the data.
  • Since 2005, the incidence of part-time working by self-employed people has risen at twice the rate of those who are employed.
  • Unemployment resulting from the downturn has certainly accounted for some of the rise – the authors believe that around 24% of the growth in self-employed numbers is due to unemployed people opting to work for themselves (possibly due to a lack of opportunities in the jobs market).
  • There are significant regional variations in employment data. Whereas self-employment has grown in all regions, it has not been matched by a recovery in employment in all areas (particularly in the North, and Scotland).

More help needed for the self-employed

The Resolution Foundation suggest that the findings “point towards some slack remaining hidden beneath the strong self-employment.”

The report also found that self-employed people are earning, on average, 20% less than they did in 2006/7 (compared with a 6% drop for the employed). They are also far less likely to be contributing to a personal pension.

In fact, the average self-employed person currently earns 40% less than his/her employed counterpart, which paints a “worrying picture of the security and vulnerability of self-employed people.”

The report says that if the rise in self-employed numbers is to become a permanent feature of the UK economy, changes need to be made to enable those working for themselves to more easily access financial services – including mortgages and pensions.

Changes to the Universal Credit should also take into account the changing nature of employment in the UK.

You can download a copy of the full report here (PDF format).