Does increased self-employment signify ‘Start-Up’ Britain or is it a cause for concern?

In our analysis of the monthly Labour Market Statistics (see 20^th December’s blog), we have questioned whether the Government is right to celebrate the recent rapid growth in self-employment, arguing that this may indicate “necessity entrepreneurship”.  This is where individuals become self-employed as a consequence of not being able to find employment – often in lower skilled activities, with relatively low and variable earnings, lacking many of the legal benefits enjoyed by employees (the minimum wage, holiday and sickness pay etc.).

A comment piece by John Harris in today’s Guardian drew useful attention to recent analysis by the Chartered Institute of Personnel and Development (CIPD) on reasons to be concerned over the true nature of the rise in self-employment.  By comparing the profile of the self-employed in a recent quarter of the Labour Force Survey (August-October 2011) to previous time periods, the authors found that the ‘newly self-employed’ were more likely to be working less than 30 hours a week and increasingly more likely to be working in unskilled, elementary activities (increasing by 29% since 2008) or personal service occupations (increasing by 19%).  Conversely, self-employed skilled tradesman have made up a much smaller proportion of the net increase (increasing by only 2% since 2008) and sectors historically associated with large proportions of self-employment have experienced a decrease in their self-employed workforce (with self-employees in construction shrinking by 3% since 2008).

Past analysis of the Global Entrepreneurship Monitor (GEM) has identified certain characteristics associated with entrepreneurs, including a higher level of skill or education, access to capital and previous experience of employment – with a high proportion of entrepreneurs being older (35-44 years old).  This suggests that self-employment is not an ideal choice for everyone.

This casts doubt on whether policy makers are wise to view self-employment as an objective in its own right, and as a status that is always somehow more desirable than employment.  This is particularly concerning when some commentators are suggesting that Government should provide start-up loans for young people (similar to loans for tuition feeds) to go into self-employment, in order to reduce youth unemployment.  Self-employment should clearly be supported when it is undertaken to pursue an idea or an opportunity, but it may result in individuals finding themselves in more vulnerable circumstances if it becomes a necessity or the only alternative to unemployment.