10 take-aways from our new report on self-employment

Towards the end of last year the RSA and Etsy launched a new project, The Power of Small, which seeks to examine the large growth in the number of microbusinesses, and what this phenomenon might mean for all of us. This week we launched our first report – one of three – which looks in detail at the individuals involved, including what is driving the increase in self-employment, how this community is changing, and what life is really like for those who work for themselves.

Here are 10 key take-aways from the paper, Salvation in a Start-Up:

#1 – Self-employment is rising at a remarkable pace

The UK is experiencing a boom in self-employment. Today there are 600,000 more microbusinesses in the UK than there was when the recession began in 2008, and 40 per cent more than at the turn of the century. Likewise, the number of people who work for themselves is up by 30 per cent since 2000, meaning that 1 in 7 of the workforce is now self-employed. This stands in stark contrast to the growth in typical employment, which is up by only 5 per cent since 2000. If these trends continue, the number of people who work for themselves will soon outnumber the public sector workforce (we estimate this could happen sometime around 2018).

#2 – Different types of people are turning to self-employment

For many years the popular image of a business owner has usually been that of a middle-aged man. However, this stereotype is being chipped away as several other demographic groups become more prominent. For example, the number of women in self-employment has grown at around twice the rate as men over recent years. Older people, too, are increasingly turning to self-employment. There has been a 140 per cent increase in the number of over 65s running their own business since 2000.  Self-employment is also becoming a more important source of work for young people (the number of under 25s going into conventional jobs has actually fallen since 2000).

#3 – Self-employment is becoming more important as a form of work outside of London

At first sight, the boom in self-employment appears to be concentrated in London and the South East. But view the regional figures in terms of the proportion of all new jobs added and it is clear that the growth in self-employment is more significant in the North and West of the country. 92 percent of the overall increase in employment in the North West since the turn of the century is accounted for by a rise in self-employment, while the figure is 62 percent in the South West. In the West Midlands, conventional employment actually fell and was only just offset by a rise in the number of people working for themselves.

#4 – There are 3 myths about the growth in self-employment that are distorting public opinion

Few dispute the fact that self-employment is on the rise and that the number of microbusinesses is growing. Where there is disagreement, however, is in what has caused the boom and whether the increase will last long into the future. Our report identifies a number of myths surrounding this phenomenon  – the first being that most of the newly self-employed are there through no choice of their own. While levels of unemployment and self-employment are positively linked, this is only one part of the story. Our RSA/Populus survey found that only 27 percent of those who started up in the recessionary period of the last five years did so to escape unemployment (see the chart below).

A second myth is that most of the newly self-employed are low-skilled odd-jobbers scratching around for work. But look closer at the data and we see that the biggest increases in self-employment since 2008 have actually been in professional occupations (one of the highest skilled groups). Finally, there is the myth that the boom we are witnessing is a cyclical blip. The growth in self-employment can’t go on forever of course, but the ‘cyclical blip’ thesis ignores the fact that self-employment had been increasing long before the recession began in 2008 (see the first graph above).

#5 – There are deeper shifts occurring in our economy and society that are driving this trend

Our report argues that the growth in self-employment is only partly due to cyclical fluctuations, and that much of the explanation also lies in more structural shifts in our economy and society. Identifying long-term trends is always an imperfect science, but our research identifies five ‘ingredients’ that are likely to have played some part in the boom. For example, demographic shifts, such as an ageing population and high levels of immigration, may have served to bump up the numbers in self-employment, since these groups are more likely to start up in business. Similarly, a gradual shift from ‘materialist’ to ‘post-materialist’ values means that greater numbers of people now prize the freedom and meaning that comes with self-employment. Moreover, the emergence of new technologies – which we often take for granted – have sent the cost of doing business into free-fall.

#6 – The self-employed are an incredibly heterogeneous group

In recent years it has been popular to divide the self-employed into two groups: those who are driven by ‘neces­sity’ and those who are pursuing ‘opportunity’. In other words, those who are either pushed into working for themselves or pulled into it. While this distinction has had its uses, most would agree that it doesn’t tell us much about the behaviours, attitudes and aspirations of what is a very diverse group of people. In a bid to get beyond this crude binary, we used the data from our survey with Populus to segment the self-employed community into six tribes.

This ranges from Visionaries, who are optimistic, high-growth business owners driven by a particular mission, all the way through to Dabblers, who are more often than not part-timers engaging in business to do something more interesting in their spare time. Knowing these tribes is not only of interest in itself, it is also useful to policymakers and business support groups seeking to stimulate business activity. For example, there is little point directing a scheme like the new Growth Vouchers programme at Dabblers and Independents who have no intention of expanding their operations.

#7 – The self-employed are materially worse off than people in typical jobs (by about £74 a week)

As part of our research we also looked at the livelihoods of people who work for themselves. What are their living standards like, how does this fair compared to the employed, and how has their situation changed over the years? The impression given by government data is a rather gloomy one. The full-time self-employed earn around 20 per cent less than their counterparts in conventional jobs, and their earnings have also been falling – down by around 10 per cent in real terms since the turn of the century. Moreover, we know from data collected by the ONS that the self-employed work longer hours - twice the number spend over 50 hours a week at work as employees. And on top of this is the problem of isolation, with close to 40 per cent of our survey respondents agreeing that working for themselves leaves them feeling disconnected from the wider world.

#8 – But the self-employed appear to be more content at work and happier overall in their lives

Given all of this, it is hard to understand why anyone would want to be self-employed, let alone why people champion it. Yet look more closely at this community and we see that a paradox exists: those who work for themselves appear to be more content at work and happier overall in their lives. Our RSA/Populus survey found that 84 percent agreed that being self-employed meant they were more satisfied in their working lives (66 percent completely or strongly so). Interestingly, this is also true for most of the respondents who started to escape unemployment. Our survey also found that less than 5 per cent of the self-employed plan to close their business and move back into a typical job.

#9 – The rise in self-employment may indicate a new ‘creative compromise’ at work

To recap, the self-employed appear to earn less, work harder and be more isolated, yet in the round are some of the happiest people in the workforce. Our research suggests this is partly because of the ‘softer’ benefits associated with working for yourself. Of those polled in our survey, 82 percent said the work they do is more meaningful than that found in a typical job, and 87 percent that they have more freedom to do the things they want. Yet this is not just about freedom, meaning and control for its own sake. There are also many practical benefits gained from working for yourself. Over half of the people we surveyed said that being self-em­ployed allows them to work around their own physical health conditions, and over a third to be able to care for older relatives.

Overall, our research points to a subtle trade-off at play when people embark on a business – something that might be called a ‘creative compromise’. On average, full-time self-employed people earn £74 a week less than their employed counterparts, but many are willing to endure this sacrifice for the multitude of other benefits that come from being their own boss. This finding indicates that many of the self-employed see the work they do as an end in itself and an inherently enjoyable activity (a concept that – believe it or not – is still foreign to large parts of society).

#10 – It's time we learned to live with self-employment

Up until now, the growth in self-employment has been met with a great deal of scepticism and consternation – some legitimate but a lot based on misconceptions and myths. If this report tells us anything it is that high levels of self-employment are here to say, and that most of those who work for themselves (including the newly self-employed) actually enjoy what they do, despite the financial drawbacks. It is far better therefore to go with the grain of such trends than to wax nostalgic for a period when virtually everyone was employed in a large organisation in a job for life.

To find out more about the report you can contact me at Benedict.dellot(at)rsa.org.uk. You can also follow me on Twitter here.