The self-employment labour market has grown exponentially in the last five years but remains financially insecure for its workers, figures from the Office for National Statistics have revealed, in a report charting striking self-employment growth over 15 years.
The number of self-employed people in the UK labour market between 2001 and 2016 increased from 3.3 million (12 per cent of the labour force) in 2001 to 4.8 million (more than 15 per cent) in 2016, contributing around one-third of total employment growth in this period, the report showed.
However, self-employment remains a financially insecure profession, with self-employed workers earning an average distributed income of around £240 a week – compared to an average of £400 a week for full-time employees.
Self-employed workers based in London, who make up 50 per cent of the overall self-employed population, were more likely to be financially better off than their counterparts, with weekly earnings at £352, compared to £200 in the north west.
Yet the figures showed that self-employed workers were also more likely to supplement their employment income from elsewhere, with male part-time employees relying on their pension and retirement incomes for more than a third of their total income.
“It’s striking that some groups of self-employed people rely on their income from employment to a much lesser extent than employees,” CIPD chief economist Ian Brinkley told People Management.
“Male part-time employees are shown to only rely on 50 per cent of their income from employment, and the next biggest contributor is income from their pensions and retirement.
“This is easily explained by employment trends – particularly when you have a larger number of employees who are retired or semi-retired and doing some self-employed work just to top up their household income. It could also be the result of people postponing coming out of self-employment rather than moving into it, which is quite important in driving these demographics.”
Brinkley suggested that a large proportion of self-employed workers could choose this route. “As far as we can tell most of the rise in self-employment appears to be out of choice rather than necessity, as previous surveys on this issue have shown,” he said. “It’s likely that people are trading off to some extent the bonus of flexibility against high personal earnings, and that is particularly likely to be the case when you have another income arriving regularly.”
However, as uncertainty over Brexit has given rise to a growing number of short-term contracts in the labour market, alongside the increasing prevalence of gig economy work, the move of highly skilled workers into self-employment could reflect a lack of opportunity in the full-time labour market.
The number of self-employed workers with a degree or equivalent rose significantly from just over 19 per cent in 2001 to 32.6 per cent in 2016.
While some self-employed workers may be financially able to supplement their income, however, the report also revealed large swathes of self-employed workers with significantly less private pension wealth than their counterparts in full-time employment.
Surprisingly, 45 per cent of 35 to 54-year-olds and 30 per cent of workers aged over 55 didn’t have any pensions savings.
Tom McPhail, head of policy at Hargreaves Lansdown, warned of an impending pensions ‘crisis’ among this labour market. “These statistics point to an impending pensions crisis for the self-employed, with millions of them heading towards retirement age with no pensions savings to draw on,” he said.
“What’s more, there is no immediate prospect of the situation improving, with less than one in 10 currently contributing to a pension.”
The statistics come as the government responded to Matthew Taylor’s review of working practices. The Department for Business Energy and Industrial Strategy yesterday launched four consultations to discuss ‘reforms’ to the rights offered to flexible workers in the gig economy and beyond – who lack basic employment protection such as sick and holiday pay. It delayed dealing with these key issues on employment status until an undetermined date.
“These new labour market trends need looking at – particularly the gig economy – because conventional market regulation has not kept pace with it, and the pressure to act on both of those areas and think about how you ensure a set of new regulations in the gig economy is going to be answerable for by the government,” Brinkley said.
“The most important takeaway is the importance of granularity in the labour market – part of the recommendations the government has accepted. It will be important to cut through the detail and not make broad assumptions about self-employment or any other form of irregular employment.”