Stronger job growth is good news for the ‘reluctant self-employed’

Given that growth in self-employment has been such an important part of the UK jobs story since the financial crisis struck in 2008, the latest stats released yesterday by the Office for National Statistics (ONS) are most welcome.

The headline breakdown of the 4.2 million self-employed people in 2012 by gender, age, occupation and hours of work more or less tells us what we already knew. The self-employed are more likely to be men, aged over 50, working in skilled trades and on average putting in longer hours than most employees. But while this grabs the attention, the really interesting figures are those that decompose the rise in self-employment from 3.8 million to 4.2 million since 2008.

Here the picture is a little different, especially with regard to hours of work. Between 2008 and 2012 the proportion of self-employed people who reported that they were working fewer hours than they wanted – what the statisticians call ‘underemployment’- increased from 6.4% to 10.8%. The corresponding rise for employees was 7.2% to 10.2%. The rise in underemployed self-employed people has thus been relatively sharp and equates to about half the absolute increase in the level of self-employment during the period.

When I last carried out my own analysis of the figures this time last year, I found that the rise in self-employment between 2008 and 2011 had been atypical of self-employment as a whole in that the newly self-employed were predominantly somewhat less skilled and, in particular, worked relatively few hours (i.e. fewer than 30 hours a week).  As a result I concluded that the new, post-recession, group of self-employed contained a large number of people who in better economic times would probably prefer to work for an employer but in a stagnant economy were hiring themselves out as self-employed ‘odd jobbers’ because unable to be hired directly by a business. The latest ONS figures are supportive of this conclusion in terms of hours, though changes in occupational classification restricts their analysis of change in the occupational mix of the self-employed to the period 2011-2012.

Interestingly, however, the ONS finds a shift in the hours of pattern between 2008-2011 and 2011-2012. In the latter sub-period, which sees around 60% of the total rise in self-employment since 2008, the increase is more typical with the majority of the most recent additions to the pool of self-employed working more than 30 hours per week. Significantly, the rise in self-employment at longer hours in 2011-2012 coincides with a faster overall rate of employment growth, with more people being hired as employees, full-time and part-time, too. This suggests that stronger demand for labour in the past year has both provided more employment alternatives to the ‘reluctant self-employed’ and enabled those who really want to ‘go it alone’ to boost their hours and income.  

With the underemployment rate for self-employed people still above 10%, and demand for labour still well down on 2008, it will still be some time before the number of reluctant self-employed odd-jobbers falls significantly. But it looks as though the balance between reluctant and enthusiastic self-employed people has already started to shift and will continue to do so long as the economy maintains a healthy overall rate of job creation.