This article has been submitted by CIPD
A new CIPD megatrends report, More Selfies? Self-Employment in the UK, has revealed a significant recent rise in the proportion of UK individuals working for themselves. Climbing since 2001, self-employed workers now make up almost 15% of the UK labour force, close to the European average. This trend has been a distinguishing feature of the UK labour market’s recovery since the last recession. Traditionally, self-employment has been associated with men aged 50 and over, working in specific industries such as agriculture and construction. The CIPDs latest findings reveal that a growing amount of women and part time workers are the main cause of this recent rise. Furthermore, a broader range of occupations, from mining to communications, are seeing self-employed individuals providing personal services and professional advice.
While more individuals are choosing to work for themselves, the gap in average earnings between self-employed people and employees has widened. Even though earnings vary widely, on average individuals who work for themselves earn around 40% less than typical employees. Interestingly however, this lower average pay does not correspond to job satisfaction. According to CIPD statistics, those who work for themselves are generally much more satisfied and happy in their jobs than employees. On top of this, fewer self-employed workers “feel under excessive pressure at work”, and more “achieve the right balance between home and work life”.
The number of individuals choosing self-employment can be affected by labour market conditions and a lack of employment opportunities. In some cases, a lack of opportunities or a dissatisfaction with employers can motivate individuals to turn to self-employment. However, CIPD’s latest report suggests that this does not explain the recent surge in individuals working for themselves. Instead, findings reveal that the UK’s regulatory climate is a more likely explanation. With regulation in recent years designed to encourage the setting up of new businesses, there is subsequently greater opportunities for self-employment than there were a decade ago. Differences in tax arrangements for employees and the self-employed will have played a part in marginal choices between working for an employer and working for yourself. Furthermore, product market and sector specific regulations which favour small or medium sized businesses also had a positive effect on those choosing to become self-employed.
Technological advances also provide an explanation for the rise in self-employment. Modern technology has dramatically reduced set-up costs in a number of industries, and allowed people to start their own business from home rather than lease office or workshop space. This has made market entry far more accessible. The internet has also brought a number of opportunities, providing the ability for individuals to both sell globally and specialise. These innovations have made it far easier for individuals in a variety of sectors to set up a business and sell the fruits of their labour.
The CIPD’s report also reveals a number of implications for the rise in the number of people working for themselves. For example, a link can be drawn between this rise in self-employment and the UK’s poor productivity performance in recent years. This is due to the fact that in some cases, sole traders have limited access to capital and resources, meaning their businesses are too small to exploit economics of scale and scope. The smaller nature of these businesses naturally restricts their ability to make the investments required to improve performance, therefore potentially limiting productivity.
From a policy perspective, a growth in awareness and interest in self-employment has occurred within political parties and think tanks. Now that a significant portion of the UK labour market is made up of individuals working for themselves, policy makers and researchers are making decisions tailored towards this section of the work force. Arguably, the balance of rights and responsibilities has in recent years shifted in favour of the self-employed. Tax regulations and policies which channelled access to finance for small businesses has acted in their favour. Furthermore, attempts to rebalance this through government proposals to enforce National Insurance payments on the self-employed have been shelved.
To look at the CIPD’s findings in full, see More Selfies? Self-Employment in the UK.