Self-Employed See Plunge in Earnings

The typical self-employed worker earns 40 per cent less than the typical employee reveals a new report by the think tank the Resolution Foundation.

The report Just the Job or a Working Compromise?  shows a dramatic fall in the weekly earnings of the self-employed ,  which have dropped by 20 per cent since 2007. Over the same period employees have seen their weekly pay fall by six per cent on average. Part of the pay drop for the self-employed is down to a reduction in the hours they are now working and part is likely to be due to a shift in the composition of the group, such as a rise in the proportion of the self-employed who are women.

Despite this pay gulf, the report suggests that widespread self-employment is becoming a fixture of the UK labour market and that recent growth in self-employment cannot simply be explained by workers settling for ‘second best’ during the years of economic downturn. In fact, self-employment has grown steadily since the early 2000s and now accounts for 4.5 million workers,  one in seven of the workforce. A survey conducted by Ipsos MORI for the report finds that almost three-quarters (73 per cent) of those who have become self-employed in the last five years say doing so was mainly or partly their personal preference, though a growing minority say it was due to a lack of better work alternatives

The report argues the continuing growth in self-employment is explained both by structural changes in the labour force and the cyclical effect of the long downturn. More people are entering self-employment and fewer are exiting.

  • Approximately 72 per cent of the growth since the end of recession is due to more people opting to become self-employed
  • Roughly a third of this (or a quarter of the overall growth) is accounted for by an increase in the numbers moving from unemployment into self-employment rather than becoming employees
  • The remaining 28 per cent of the overall growth is due to fewer people exiting self-employed work

The UK’s ageing and expanding workforce has played a significant part. The ranks of the self-employed have been swelled by a greater number of older workers due to a reduction in the numbers exiting self-employment as some postpone retirement. This is likely in part to be due to low levels of pension savings, and longer life expectancy. Proportionally, part-time work has risen among older self-employed workers at the same time as it has fallen among older employees. Older workers aged 60 or over, make up almost a third (32 per cent) of the self-employed who work part-time. Among employees, by contrast, older workers represent only 13 per cent of total part-timers.

Otherwise major changes seen among the self-employed in recent years – becoming better educated, increasingly working in service sectors – are mirrored in the rest of the workforce. Detailed analysis of the characteristics of those working for themselves suggests that – other than a growing share of women – there is no shift towards a starkly different type of self-employed worker emerging in the post financial crisis era.

Gavin Kelly, Chief Executive of the Resolution Foundation, said:

“The growth in self-employment over recent years has been astonishing – but the reasons for it are complex. Some of it can be explained by a workforce that is getting older and putting off retirement for longer, some of it may be down to our growing appetite for being our own boss, and clearly much of it is due to weakness in the jobs market meaning there are fewer other options. Whatever the cause, self-employment is often a highly precarious existence which isn’t that well supported by public policy. High levels of self-employment seem likely to be here to stay and policy-makers have some catching up to do.”