Sharp rise in self-employment may be masking true extent of unemployment

Despite today's fall in unemployment, there are still causes for concern in the labour market.

Labour market1j

Today’s labour market figures continue the recent run of better news from the jobs markets. Unemployment fell by 63,000 over the quarter and the unemployment rate is down 0.2 per cent to 7.2 per cent. Employment increased by 105,000 to 30.19 million.

However there are still causes for concern.

Youth unemployment has fallen by 29,000 to 912,000 but remains exceptionally high. Long-term youth unemployment remains a particular problem.

Despite the rise in employment the number of employees actually fell by 60,000 in the most recent quarter. This was offset by rise in self employment of 211,000. Over the last year the number in self-employment has risen by 285,000, this represents 62 per cent of job creation over the year.

Since the onset of the recession, self employment has increased dramatically, in early 2008 13 per cent of all workers were self-employed; this now stands at 15 per cent, or one in seven workers.

   Data in 000’s Employees Self-Employed
Jan- Mar 2008 25,428 3,858
Nov – Jan 2014 25,487 4,464
Increase 59 606

While the number of employees fell sharply durning the downturn and has only just reached pre-recession levels, the story with self-employment has been very different.

labour market2j

The concern is that this sharp rise in self-employment could be masking the true extent of unemployment as people previously in work ‘go freelance’, start their own businesses or are forced into false self-employment, rather than sign on.

Earnings data have shown that the earnings of the self-employed are much lower than employees.

Region Male Female
North East

12,700

8,230

North West and Mersey

13,900

8,950

Yorkshire and the Humber

13,700

8940

East Midlands

13,800

8,670

West Midlands

13,100

8,850

East of England

18,200

9,740

London

25,700

12,400

South East

19,100

10,000

South West

13,900

8,370

Wales

12,400

8,060

Scotland

16,500

11,100

Northern Ireland

12,000

9,300

United Kingdom

17,000

9,800

Written answer from Treasury questions on 4 March 2014

Most self-employed women are earning less than £10,000 a year, and self employed women in London are earning half as much as men. My blog last year shows the growth of self-employment in low-paid jobs that women tend to do.

Average weekly earnings (total pay) rose at an annual rate of 1.4 per cent in January, this is up from 1.2 per cent in December. The squeeze on real wages continues but has slackened in recent months. This remains the longest continuous period of falling real wages since the 1870s.

The annual rise of 1.4 per cent in weekly earning masks a big divergence between public sector earnings (+0.5 per cent) and private sector earnings (+1.7 per cent).  Excluding financial services firms (the nationalised banks), public sector pay rose by 0.9 per cent.

Labour market3j

It is likely that real wages will begin to rise this year but it will take many years before they regain their previous peak.

Recent months have shown welcome signs of improvement in the labour market but now is not the time for complacency.

2 Responses to “Sharp rise in self-employment may be masking true extent of unemployment”

  1. Francis Stroud

    Of course self employment is rising, as it is one way you can claim tax credits without even having any real paid work.
    Also many contractor employees at companies are setting up dummy companies to avoid tax, with many only paying 15% in tax if they pay any tax at all.
    This is one reason why the UK’s tax income is dropping making us all poorer.

  2. swatnan

    It could explain why. Any chance of separating out the real self employed and those forced to declare themselves unemployed?

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