The Resolution Foundation is an independent research and policy organisation with a goal to improve living standards for the 15 million people in Britain on low and middle incomes. To achieve this they conduct rigorous research, analysis and policy development to inform public debates and influence key decision makers in government, the private sector, and civil society. Laura Gardiner joined the Foundation’s research team a couple of months ago having previously spent nearly four years researching unemployment and welfare policy. In our latest interview, we discuss with Laura the Foundation’s fascinating recent research into self employment.
Tell us about the Resolution Foundation’s recent study looking at the growth in the number of self-employed workers despite their average fall in earnings.
The growth of self-employment has become one of the stories of the recovery. While the number of employees has only recently regained its pre-recession level, the number of people who are self-employed has grown by 650,000 since 2008 to reach 4.5 million, or nearly 15 per cent of all employment. We set out to understand what’s been driving this growth, and what life is like as a self-employed person. It’s a topic that’s garnered a lot of interest in recent months, but the evidence base has been pretty thin, so we trawled all the relevant national datasets for answers, and also commissioned a survey of just under 1,000 self-employed people from Ipsos MORI. Our study details the characteristics of self-employed people; the long- and short-term drivers of rising self-employment numbers; what’s been going on at the regional level; and the attitudes, earnings, and financial security of the self-employed.
The report argues that ‘the continuing growth in self-employment is explained both by structural changes in the labour force and the cyclical effect of the long downturn’. Can you explain a bit more about these causes?
Much of the recent debate has theorised that self-employment is being pursued as an option of last resort during the tough economic climate we’ve experienced in recent years. We found a lot of evidence against this: self-employment has been rising steadily for more than a decade, and the characteristics of people becoming self-employed have not changed particularly in the post-recession period. In addition, some of the recent growth in self-employment appears to be linked to the UK’s ageing and expanding workforce, with a fall in the numbers exiting self-employment as more people work in this way as an alternative or complement to retirement. And finally, our Ipsos MORI survey found that the majority of people who became self-employed since the recession did so wholly or partly due to their personal preference, and not solely due to a lack of better work alternatives. All these findings suggest that self-employment growth is a longer-term, or more structural, phenomenon.
However, there is also evidence that cyclical factors have played an important part. Part-time working and underemployment have grown faster for the self-employed than employees, and self-employment growth has accompanied steep falls in employee numbers in many regions of the UK. In addition, we estimate that a quarter of the growth in self-employment since the recession can be explained by an increase in the number of people moving from unemployment into self-employment, rather than becoming employees.
Do you think the level of growth in self-employment will continue at its current rate?
Given that part of rising self-employment is explained by the cyclical effects of the long downturn, it’s unlikely that the particularly strong growth rate we’ve seen in recent months will continue. However, the recent uptick is part of a longer-term trend, and on this basis we think relatively high levels of self-employment are here to stay.
The study shows that self-employed workers earn 40% less than than employee. Why do you think this is?
A typical self-employed worker has always earned less than a typical employee, but the weekly earnings of the self-employed fell by a fifth since 2007, compared to only a 6 per cent fall in employee earnings, meaning the gap has got much wider. We think some of this is down to a reduction in the hours the self-employed are now working, and some is likely to be due to a shift in the composition of the group towards lower earners, for example a rise in the proportion of the self-employed who are women. In addition, we note that while many employees lose their jobs in a recession, the self-employed have the option to stay put and work less or charge lower rates, which means that their typical earnings may have been dragged down in comparison to employees.
The study also found that self-employed people are more likely to be underemployed and that this is the reverse of the situation seen before the economic downturn. What do you think has led to the shift?
Underemployment grew for all workers during the downturn and since. Given that self-employment is increasingly an option for those moving into work from unemployment, or on the run-in to retirement, it is perhaps unsurprising that the growth in underemployment has been particularly felt by the self-employed. In addition and in line with the story on earnings, we think that part of the rise in underemployment can be explained by the relative flexibility of self-employed workers, who have the option to run down their hours or rates in tough times while employees may be tied into contracted hours or lose their jobs altogether.
With all the different findings of the study in mind, what single finding struck you as the most surprising?
I was a bit surprised that, according to the Ipsos MORI survey, only a third of self-employed people would describe themselves as entrepreneurs. It’s always hard to gauge the reasons why people may or may not identify with a particular term, but this suggests that the majority of the self-employed are not engaged in innovative or risky ventures. Our study also shows that self-employed people are now more likely than ever not to employ anyone else, which is a reminder that characterising all of the growth in self-employment as reflecting a new generation of start-ups probably doesn’t reflect the reality of self-employment for many people.
Commenting on the study, Resolution Foundation Chief Executive, Gavin Kelly, said that ‘self-employment is often a highly precarious existence which isn’t that well supported by public policy’. Why do you think it isn’t particularly well supported by public policy?
As our study found, self-employment has been on a steady upward trend for some time, so I think historically it’s been seen as an alternative way of working for a select few, rather than a central feature of our labour market that now accounts for one in seven workers. As a result, policies designed with the whole workforce in mind haven’t addressed the needs of the self-employed particularly well. For example, our study found that less than a third of the self-employed are making pension savings compared to more than half of employees, and this gap is only going to get wider when pensions auto-enrolment policy takes full effect.
In addition, the self-employed aren’t very well captured by a lot of our main national statistics, for example on earnings, so it’s actually quite hard to get to the bottom of what their challenges are. Data drives policy and public debate, so if the self-employed are to be better supported in future, it’s crucial that we know more about them.