Opportunity or necessity… what’s fuelling the growth in self-employment?


With unemployment reaching its lowest level since 1975, it may seem like the state of the labour market has improved in recent years. However, a closer look at the statistics suggests that this is not necessarily the case.

The strong performance in the labour market in part reflects the growth in self-employment, which has been a distinguishing feature of the labour market’s recovery since the last recession.

Growth in self-employment

There were almost 750,000 more self-employed in the UK workforce at the end of 2014 than at the start of the global financial crisis in 2008, representing a high proportion of the total net growth in jobs over this period. Self-employment accounts for over 15% of those in work in the UK – 4.8 million of a workforce of around 32 million. Between March 2008 and March 2017, self-employment accounted for almost a third of total employment growth.

The significance of the contribution of self-employment is highlighted in a recent article published in Regional Studies, which notes that of the 920,000 net new jobs created between quarter 1 of 2008 and quarter 2 of 2014, 693,000 were in self-employment.

There has also been a rise in the share of female self-employed and those that work part-time, in addition to growth in a broader range of industries and occupations among the self-employed.

Recent ONS figures also show that the growth in self-employment between 2001 and 2016 has been driven mainly by those who have a degree (or equivalent), leading to the share of the self-employed with a degree or equivalent increasing from 19.3% in 2001 to 32.6% in 2016 as a share of total self-employed. As a share of total employment (self-employed and employed), the figures show that relatively highly-qualified individuals are becoming more concentrated in the self-employed.

Earnings growth?

The reasons for this growth has been the subject of much debate, particularly as research suggests many fail to earn a decent living. This recent analysis by the New Economics Foundation found that 54% of all self-employed people are not earning a decent living. It also found that the percentage of the labour force in ‘good jobs’ had decreased from 63% in 2011 to 61% in 2016, suggesting that the quality of jobs is perhaps declining.

Similarly, the ONS figures suggest that the self-employment labour market remains financially insecure for its workers. They show that the distribution of self-employed income appears centred around £240 a week, much lower than that for employees, which is centred around £400 a week.

And, according to a recent report from CIPD, their real incomes have fallen more since 2008 than those of employees.

Perhaps, then, the self-employment growth has been driven by necessity rather than choice due to a lack of opportunity in the full-time labour market.

However, the evidence suggests it is not this simple.

Despite the widening gap in earnings between the self-employed and employed, the self-employed continue to have higher levels of job satisfaction than employees. The ONS figures also indicate that self-employed workers were more likely to supplement their income from elsewhere.

This would suggest that choice probably plays a large part in self-employment.

‘Push’ or ‘pull’ effect

There has been much discussion over whether the growth in self-employment is predominantly a result of choice or necessity.

It is often seen as a sign of labour market weakness, with self-employment perceived as a ‘last resort’ where a regular job can’t be found. The evidence suggests that this motivation accounts for just a small proportion of the change, however, with most of the rise in self-employment appearing to be out of choice rather than necessity.

Indeed, the recent analysis in the Regional Studies article, which examined the extent to which self-employment was associated with local ‘push’ or ‘pull’ effects, found little or no suggestion of any net ‘recession-push’ effect on self-employment. It suggests that:

  • ‘pull’ factors are more significant in driving transitions into self-employment;
  • self-employed business ownership appears not to function as a significant alternative to unemployment where paid employment demand is weak; and
  • entrepreneurial activity prospers where local wages are higher and unemployment lower.

The uncertainty surrounding Brexit could also be having an effect as declining employer confidence has contributed to a growing number of short-term contracts – potentially making self-employment appear the better choice.

Final thoughts

As the CIPD report highlights, there are probably more opportunities for self-employment now than there were a decade ago. And the self-employed are more likely to value highly aspects of the work, such as its variety, and choice over their working hours and pay.

Across the range of job-related characteristics, it is shown that the self-employed are as satisfied or more satisfied with their working life than employees, resulting in higher levels of overall job satisfaction – a finding that is consistent both over time and from different data sources.

In a time where work-life balance is of increasing importance, it is perhaps no surprise that self-employment is the path of choice.

If you enjoyed reading this, you may also be interested in our previous blogs on the gig economy, ‘the self-employment boom’ and ‘olderpreneurs‘.

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s