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The Growing Importance of the Self-Employed to the UK Economy

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Research published earlier this year by the Office for National Statistics has demonstrated, once and for all, the importance of the self-employed to the UK labour market over the last ten years.

According to the report “Trends in self-employment in the UK’, which analysed the characteristics, income and wealth of the self-employed, the proportion of those working for themselves has grown from 12 per cent of the labour force in 2001 to 15 per cent of the labour force in 2016, which equates to around 1.5 million extra self-employed people over this period.

But more relevantly, it was the self-employed who contributed the most to the labour market both during the recent recession and as the economy recovered from the financial crash. Indeed, while employee jobs fell during and after the economic downturn, self-employment jobs continued to grow, contributing the most to employment growth up until the end of 2014.  And even as mainstream employment started to grow again after then, a third of all total employment growth was down to the self-employed in the workplace.

In terms of the earnings from employment and self-employment, the analysis shows that the distribution of income for employees is £400 per week, which is much higher than for the self-employed (£240 per week) although a range of different factors (including the number of hours worked, the sector in which the business is based and how people pay themselves) could account for this difference.

In terms of gender differences within the self-employed, the study shows that whilst the proportion of full-time self-employed males has gone up by 23 per cent since 2001, it has increased by 80 per cent for self-employed women. Unfortunately, there remains a considerable pay gap between men and women, with self-employed males earning £363 per week in 2016 as compared to £243 per week for the female self-employed. More relevantly, there has been no closing of this gap with the median weekly salary increasing by 22 per cent for both self-employed men and women since 2001.

The largest changes by age have been experienced by those at both ends of the spectrum with those aged 65 and above and in self-employment increasing from 159,000 to 469,000. For young people (aged 16 to 24 years), the number of self-employed increased from 104,000 to 181,000 between 2001 and 2016. This suggests that to maximise the opportunities from this trend, bodies such as the Prince’s Trust and Prime Cymru which focus specifically on helping these two age groups should be given greater support to do so.

There has always been the myth that only those with little education and who cannot get a job working for others will enter self-employment. However, the study actually shows that the recent expansion in those working for themselves has been partly driven by those who have gone to university. In fact, the proportion of those with a degree has increased from 19 per cent in 2001 to 33 per cent in 2016 as a share of total self-employed. This again demonstrates the importance of ensuring that enterprise is a key part of the strategies of higher education institutions going forward.

Therefore, this report shows that not only is self-employment growing but contrary to what was expected, it is a range of quite different demographic groups – women, graduates, young people and retired workers – that are making the biggest contribution to this growth. However, the remuneration from working for someone else remains stubbornly higher than for those who are self-employed and if the UK economy is to maximise the benefits from these key contributors to employment, then this must an issue which policymakers need to deal with in the future.