The Resolution Foundation published a report this week with a thorough analysis of how the community of self-employed people in the UK is changing – something we’re looking at ourselves at the RSA.
I’m glad to say that (more or less) their findings mirror our own. Here are the top-lines you should be aware of, along with some graphs I’ve nabbed from their report.
#1 The causes of the boom are partly structural, partly cyclical
The economic downturn unsurprisingly appears to have played some part in fuelling the growth in self-employment. The Resolution Foundation estimate that the jump in the number of people moving from unemployment to self-employment accounts for a quarter of the increase. That said, the authors also say there is something more structural going on here, indicated not least by the fact that self-employment has been growing pretty much year on year since the turn of the century.
Their Ipsos Mori survey shows that the vast majority (73 per cent) of people who became self-employed since the downturn did so partly or wholly out of personal preference. In other words, they weren’t pushed into it. The authors highlight an ageing population as one structural driver – and this is something pointed out by others – but there are likely to be plenty more long-term factors at play (technology, immigration, changing mindsets etc.)
#2 And life for the self-employed appears precarious
The Resolution Foundation’s analysis shows that real median weekly earnings among the self-employed have dropped by 20 per cent since 2006-07, whereas employee earnings have fallen by 6 per cent. The implication is that those who work for themselves now earn around 40 per cent less than their counterparts in typical wage work – a sizeable sacrifice for anyone considering going it alone.
The poll undertaken with Ipsos Mori finds that the self-employed also suffer other hazards outside of their business: 70 per cent don't have a pension in place and 20 per cent say they face difficulties in accessing mortgages as a result of working for themselves.
#3 Yet the vast majority of the self-employed want to stay that way (even the new ones)
The third key point from the report is perhaps the most interesting. When asked whether they would prefer to be a typical employee, 28 per cent of those who kicked off their business in the years of the downturn (i.e. less than 5 years ago) said yes. This seems like a sizeable figure, and is substantially higher than the 11 per cent of long-term self-employed who said yes. But in another sense it is very low. Despite the low wages and other financial pitfalls, what we are saying is that close to three quarters of the newly self-employed are perfectly happy where they are (see graph below).
Of course, this presents a major question that remains unanswered – namely why so many people in such a position prefer to work for themselves. I’ve referred previously to this paradox as the ‘virtuous toil of self-employment’, and it's something we’ll be unpacking when we come to launch our own report later this month.
Don't believe the gripe
So the report is full of great and highly insightful findings. But what surprised us at the RSA was that certain commentators and newspapers appeared to have misreported the message, focusing largely on the negatives and ignoring the positives. For instance, when the Resolution Foundation released a preview of their results in April, most of the papers laboured the point that 450,000 of the newly-self employed want to return to wage work - yet very few (if any) said the remaining 1,250,000 are happy where they are.
Likewise, when the full findings were released earlier this week the Guardian opted for a strangely downbeat news item, complete with an accompanying picture of a Job Centre Plus office and a quote from a leading economist that self-employment is “the last refuge of the desperate”. Yet that’s not what the Resolution Foundation figures suggest at all. As shown above, the 'last resort' argument is only one part of the story, and a small part at that.
The reason why all of this matters is because inaccurate commentary of this kind risks creating a warped narrative around self-employment, which in turn informs whether or not people believe it to be a ‘good thing’, and whether it deserves being promoted and supported. This report (and our upcoming paper) both point to the need for a much more balanced debate – one that does not drown in the hyperbole of 'entrepreneurship', nor one that treats self-employment as the haven for the desperate and needy.
Once we’ve got that straight, perhaps we can turn our attention towards helping them achieve their full potential.