Self-employment has risen dramatically in the UK. This rise has
been entirely driven by ‘solo’ self-employment – sole traders and
owner-managers with no employees. By the end of 2019, there were
nearly 4 million solo self-employed workers, up from 2.3 million
in 2000. The level and growth of solo self-employment in the UK
are among the highest in OECD countries.
A new report, part of the IFS Deaton Review of Inequalities
funded by the Nuffield Foundation, finds that the solo
self-employed are an increasingly disadvantaged group in the
labour market and that part of the recent rise in numbers is
likely to reflect a lack of opportunities in traditional
employment:
- A quarter of the newly solo self-employed were unemployed
immediately before embarking on self-employment, a share which
rose sharply following the Great Recession a decade ago. The solo
self-employed appear to be an increasingly marginalised group
compared with employees. In 2000, they were no more likely to
have been recently out of work than employees, but by 2019 they
were nearly 1.5 times as likely to have been.
- The solo self-employed earn less than employees on average
and the gap has widened over time. Average (median) pre-tax
earnings in 2018–19 were 30% lower than among employees.
- Many solo self-employed workers are ‘underemployed’, with 12%
wanting to work longer hours in 2019, compared with 9% of
employees. Again, the gap with employees has widened over time.
- The more solo self-employment there is in an area, the more
employee wages are held down. This suggests that (at least some
of) the solo self-employed play a similar role to the unemployed,
in providing a ‘reserve army’ of potential employees which
reduces the bargaining power of actual employees and hence their
wages. Again, this is consistent with solo self-employment being
a fall-back option: some solo self-employed would opt for
traditional employment if they had the chance. This appears to be
as true of those with higher earnings as of those towards the
bottom of the distribution.
Xiaowei Xu, a Senior Research Economist at IFS and an author of
the report, said:
‘Taken together, the evidence in our report suggests that solo
self-employment is often a fall-back option for workers who face
bleak prospects in traditional employment. COVID-19 has now made
these prospects even worse. It is important to try to find ways
of supporting people which recognises that some self-employment
is really akin to hidden unemployment, rather than people
pursuing appealing business opportunities.’
Mark Franks, Director of Welfare at the Nuffield Foundation,
said:
‘The solo self-employed account for a significant and growing
share of the UK labour market. While solo self-employment might
be a positive choice for some, for many it is an action of last
resort that is characterised by low pay, and may also be
contributing to lower wages of those in traditional employment.
The Deaton Review is playing an important role in enhancing our
understanding of self-employment as both a potential contributor
to, and consequence of, economic inequality.’
