Self employment is the new employment

Posted on November 6, 2014 · Posted in Business Month

If your image of a self-employed person is a consultant carrying a briefcase, think again.  According to the Office for National Statistics (ONS), the most common jobs for the self-employed in the UK were in the construction sector, followed by taxi drivers and then carpenters and joiners.

 

And while some of the self-employed are undoubtedly rich, an awful lot are poor. Figures just published by the StepChange Debt Charity reveal that its self-employed clients in Northern Ireland are on average £279 a month worst off than those in full time employment.  Moreover, they have an average debt level of nearly £37,000 and their earnings are typically £169 short of what they need to pay their essential monthly bills.

 

Whether the trend is regarded as negative or positive, it is inescapable – we are heading into a freelance world. Within a few years there may be more people self-employed than in traditional full time employment.  A study by accountancy firm PwC projects that by the end of the decade – just over five years ahead – half the working population in the UK will be self-employed.

 

We have already seen a sharp escalation in self-employment. Chris Bryce, chief executive of the sector’s representative body the Association of Independent Professionals and the Self Employed – previously known as the Professional Contractors Group – is clear that a big change in the nature of work is taking place.

 

“Self-employment is the zeitgeist,” he says. “It has grown by an astonishing 39% since 2000 and has outstripped growth in traditional employment by three to one in the last decade.” He adds that during the next year the number of people self-employed will overtake those in public sector employment.

 

The rise in self-employment – across the UK, but also in Northern Ireland – responds to several pressures. ONS explains the major factor is that fewer self-employed people now retire.  This is probably because their financial situations mean they cannot afford to stop working and with longer longevity and improved older health, people are physically and mentally able to work later in life.

 

We can speculate about other factors, too. It is clear that many more people made unemployed during the recession responded by earning money as and when they could through self-employment, rather than becoming unemployed.  This is particularly true for older people who fear they may have otherwise been regarded as unemployable.

 

“One of the reasons for the increased self-employed in Northern Ireland has been the number of over 50 years of age going into self-employment,” says Ulster Bank chief economist, Richard Ramsey. “That is the same reason in my view as the rest of the UK, but we don’t have as many ex-bankers and so on who can go into consultancy.”

 

In addition, agrees Ramsey, the younger age profile of Northern Ireland may explain why our rate of self-employment is marginally less than the rest of the UK. It is a bit under 15% in Northern Ireland according to the latest figures, while it is 15% in the UK as a whole.  This is the same average rate as the rest of the European Union, though substantially below the level in some countries.  In Greece, one in three workers is self-employed.

 

But there are also major variations in the rate within the UK. As would be expected, the self-employment rate is higher in London than in northern England.  But the very highest rates are in remote parts of Scotland and the far south west of England, where modern internet technology has created opportunities for homeworking that were unavailable until quite recently.  It is noticeable that many isolated areas have high levels of self-employment.  One third of workers on the Isle of Scilly are self-employed, with the Orkney Islands not far behind.

 

Within Northern Ireland, the gender difference is very obvious. Nearly 22% of working men here are self-employed.  By contrast, less than 7% of women are self-employed.  Richard Ramsey suggests this can perhaps be explained by the strong role of the public sector in Northern Ireland.  “There is a dominance here of the public sector for female employment,” he explains.  “That is probably seen as the employment destination of choice.”

 

But the growth in self-employment must on no account be overlooked or undervalued in terms of its role in the modern economy. In Great Britain, the reduction in unemployment is down to the growth in self-employment above all other factors.  Two thirds of the jobs created in the UK in the last six years were self-employed.  Total employment grew in the UK by 1.1 million since the second quarter of 2008, of which 732,000 were self-employed.  This is an astonishing and highly significant statistic.

 

However, Northern Ireland is behaving differently from the rest of the UK. In the period from 2011 to 2013, Northern Ireland was the only region in the UK where self-employment actually fell.  The number rose by more than 430,000 in that period in the rest of the UK.  It has since improved, while tending to fluctuate – the figure in the second quarter of this year was about 4,000 down on that in the first quarter.  Had Northern Ireland been able to consistently build on the self-employment base of 2011, it is possible that the claimant count figures here would be better than those for the UK as a whole.

 

But while self-employment is better than unemployment, there should be no confusion about it equalling wealth. Average pay for the self-employed in the UK is down 20% since 2007, according to the Resolution Foundation, a research institute.  It reports that average pay for the self-employed is now 40% below that for employees.

 

The self-employed are also more likely to work long hours, but, confusingly, they are also more likely to work fewer hours. The first statistic may reflect the self-employed’s need to work more to make up for low pay, while the latter fact may reflect the lack of working opportunities.  Self-employment also allows for more flexible hours, to fit in with child caring and other commitments, which is a decided plus.

 

Flexibility is the main factor driving self-employment, both for the individual and for companies. Self-employed labour can become a variable rather than a fixed overhead and can be taken on as and when required.

 

David Knight, an associate partner at accountancy firm KPMG explains: “There is certainly a need for organisations to be able to switch on and off their workforce in line with demand without incurring financial liability, though flex within the workforce currently isn’t easy or effective.  Combine that with a push from younger generations to work in a different way from their predecessors, and it highlights the need for better use of the workforce. Our research shows that this form of employment can become the norm in ten years time.”

 

There are then very strong upsides in the growth of self-employment. But there are risks.  The TUC is concerned at the rise of ‘underemployment’ – with a rising tide of people only working part of the time and sitting waiting for the call to begin work again.  According to the TUC, Northern Ireland has the UK’s worst problem of rising underemployment.  Many of those people are self-employed.  It is not all rosy.