Self-employment goes up as self-employed income goes down

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Of people who were self-employed in 2009, 23% were no longer so by 2014, the lowest outflow rate from self-employment for any period over the last 20 years, a new report from the Office for National Statistics (ONS) has found. Therefore the rise in self-employment can be accounted for by fewer people leaving self-employment than in the past. Some 886,000 people who were self-employed in 2009 had left by 2014, compared with 1.3 million who were self-employed in 2004 leaving by 2009.

ONS surveys do not ask why people are not leaving self-employment, but the fall in the outflow from self-employment could be the result of several economic and social factors which may include:

More people (both self-employed and employees) continuing to work beyond the state pension age, with self-employment among those aged 65 and over doubling from 241,000 in 2009 to 428,000 in 2014

Reduced opportunities to work as an employee at the onset of the economic downturn, limiting the opportunity for people to move from self-employment

The rise in employment over the past six years has been predominantly among the self-employed. There were 1.1 million more workers in April-June 2014 compared with January-March 2008, among whom there were 732,000 more self-employed.

In total in April to June 2014 there were 4.6 million people who were self-employed, and the three top self-employment roles were in 2014 construction and building trades (167,000 people), taxi drivers and chauffeurs (166,000 people) and carpenters and joiners (144,000 people).

Self-employment is common within the construction industry, but the economic crisis hit this sector the hardest, to the extent that comparing 2014 to 2009 it had the slowest growth in self-employment compared with other major industry groups. Over the same period the rise in self-employment was largest in professional, scientific and technical activities which include roles such as management consultancy, book-keepers, photographers and chartered accountants.

Looking at the different parts of the country, 17.3% of Londoners in work were self-employed,  followed by the South West at 16.6%; the lowest proportion was in the North East, at 10.8%, followed by Scotland at 11.5%. At a local level, the area with the highest rate of self-employment was the Isle of Scilly, at 33.2%, followed by the Orkney Islands at 28.2%.

The report also looks at hours worked by the self-employed compared with employees. 35% of self-employed workers normally work 45 hours or more per week in 2014, compared with 23% of employees. Additionally, 12% of self-employed people usually work 60 hours or more per week compared with just 5% of employees. However, self-employed people are also more likely than employees to work short hours – 5% usually work less than eight hours per week, compared with 2% for employees.

Across the European Union, at 15% the UK had a similar proportion of its workforce in self-employment than the EU average. Greece had the highest (32%) percentage of its workforce who were self-employed, a product of its large agricultural sector and the effects of tourism.

Comparing January-March 2014 with the same period in 2009, self-employment increased by around 19% in the UK, equivalent to around 720,000 people. This percentage increase was the third highest in the EU, behind Slovenia (23%) and Estonia (20%), although these countries are relatively small in comparison.

The number of women in self-employment is increasing at a faster rate than the number of men

In 2014 women made up just under one third of the self-employed (1.4 million). Since 2009 the number of self-employed women has increased by 34%. By comparison over the past five years the number of self-employed men has risen by 15% to 3.1 million in 2014. Despite the rise in women being self-employed, men still make up 68% of self-employed workers.

Work in skilled trades in male-dominated industries such as construction have suffered more from the effects of the economic crisis than the service sector and professional occupations that self-employed women tend to work in. This can help to explain why the number of women in self-employment has been increasing at double the rate that it has for men. The top three occupations for self-employed women are cleaners and domestics, childminders and related occupations and hairdressers and barbers.

Average median income from self-employment fallen by 22% since 2008/09

In 2012/13 the average median income from self-employment was £207, according to the Family Resource Survey, a fall of 22% (after taking into account inflation) since 2008/09.

Note though that household surveys generally underestimate income from self-employment as income generally comes from a wide variety of different sources and the estimate relies on respondent recall which can often be difficult.

The figures for the income of the self-employed will include those individuals who made a loss in their business and hence in theory had a negative income for the year, whereas employees do not earn a negative wage. Self-employed workers also do not get the same benefits that employees do in terms of paid leave, sick pay or maternity pay.

Commenting on the analysis by the ONS, TUC General Secretary Frances O’Grady said: “(These) figures nail the myth perpetuated by ministers that the UK’s new self-employed workers are all young entrepreneurs. In fact, almost half are over the age of 50.

“It’s great that older people are using self-employment to stay working and earning as they approach and even pass their state pension age, even if many are doing this because they can’t afford to retire.

“But it’s worrying that much of the recent increase is due, as the ONS says, to the limited opportunities for people to move out of self-employment.

“It’s not hard to see why some people would want to stop being self-employed as their average income has collapsed in recent years. The latest assessment of earnings from self-employment is £207 a week, less than half that of employees. They also don’t receive any sick or holiday pay, nor do they have an employer contribute towards their pension.

“Self-employment appears to be a key factor in the UK economy’s shift towards low-paid work. Many people want to work for themselves. But the growth in self-employment is reducing people’s pay, job security and retirement income – and is likely to be reducing the government’s tax take too.”

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