1. Main points

The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015. While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.

Full-time and part-time workers each account for around half of the rise in the absolute number of self-employed workers, but the growth rate of the part-time mode has been much stronger. Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015.

The data presented here suggest that in general, self-employed workers are broadly content with their labour market status. Relatively few report negative reasons for becoming self-employed, few indicate that they are looking for alternative employment and among the part-timers, many respondents report that they would prefer not to work full-time. Evidence of under-employment is strongest among younger, male workers, who display a greater degree of dissatisfaction.

The number of self-employed workers has risen over the long term as a consequence of stronger in-flows from employment and unemployment offsetting a net out-flow to inactivity. These movements, as well as stronger intra-self-employment flows – movements from full-time to part-time self-employment in particular – suggest that recent growth in aggregate self-employment is in part related to workers managing their retirement in a different way to previously.

As groups, both the part-time and full-time self-employed have aged considerably over the last ten years and in excess of that indicated by simple demographics. The fraction employed in finance and business services has risen considerably, they are relatively concentrated in the South East and London, and changes in their usual hours worked have broadly followed trends for employees.

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2. Executive summary

The performance of the labour market and the growth of self-employment have been among the defining characteristics of the UK’s recent economic recovery. The headline employment rate – which fell from 73.0% in Q1 2008 to 70.1% in Q3 2011 – recovered relatively quickly, aided in part by strong growth in self-employment. The level of self-employment increased by around 730,000 between 2008 and 2015: rising from 3.8 million to 4.6 million. Around half of this absolute change was accounted for by full-time self-employment, and around half by part-time self-employment. Although the growth of self-employment may have accelerated in recent years, this paper finds that these trends are better seen as a continuation of an existing, pre-downturn trend, extending from the early 2000s, only part of which can be explained by the evolution of demographics (see Section 2).

While the absolute change in self-employment has been evenly divided between full- and part-time modes, the proportionate growth of the part-time mode, albeit from a lower base has been much stronger and has played an important role in raising the prevalence of self-employment overall. Part-time self-employment grew by 88% between 2001 and 2015 – compared with 25% for the full-time mode – and accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015 (see Section 3). While full-time self-employment continues to account for the majority of self-employed workers, its share of employment and hours has grown somewhat less over the last 15 years (see Section 4).

Below the aggregate level, there are trends that are common to both full- and part-time self-employment. Both groups of workers have seen their age profile get markedly older in recent years, both are increasingly concentrated in the finance & business services industry, and changes in their average usual hours worked have broadly followed the trends of employees. Both groups are relatively concentrated in higher occupational groups and in the South East and London, with full-time self-employed workers in particular becoming more concentrated in the capital (Sections 3 and 4 ).

The evidence presented here suggests that, in general, self-employed workers are broadly content with their labour market status (Sections 3 and 4). Among older part-time self-employed workers in particular, there is little evidence of workers wanting a full-time position, of job search or of dissatisfaction with their self-employed status. Analysis also suggests that those moving from employee positions to self-employment tend to have somewhat higher pre-transition hourly earnings than workers moving to new employee positions: trends which are more consistent with workers making a positive choice, rather than being forced to be self-employed. Among younger and mid-aged self-employed women, in particular those working part-time, the growth in the incidence of self-employment has not been accompanied by growth in the number of people who would prefer to work full-time, nor a clear uptick in the number of workers seeking an alternative job. Among younger part-time self-employed men, however, the picture is less certain. Larger portions of these workers display a greater degree of dissatisfaction with their part-time status and appear to have come directly from unemployment – possibly indicating a choice made under economic hardship. It is among these workers that evidence of under-employment is strongest.

This paper also shows that self-employment has grown over the long term because the net in-flows from unemployment and other forms of employment have exceeded a net outflow to inactivity. During the economic downturn, the net flows from unemployment and from among employees fell markedly, but during the recovery which followed these net inflows grew in volume. The outflow to inactivity also declined markedly during the downturn – largely as a consequence of lower net outflows from part-time self-employment. This result is particularly striking given the age mix of the self-employed, which has shifted towards older workers over the recent years.

This paper also finds evidence of a growing number of workers moving between the full- and part-time modes of self-employment (Sections 3 and 4). While these growing intra-self-employment flows do not affect the headline number of self-employed workers, they are instructive. This may in part reflect changes in labour supply brought on by changes in demand conditions, as self-employed workers alter their hours in response to demand. However, older workers are also much more likely to make the transition from full-time to part-time self-employment than younger workers, and account for a large portion of the growth in this employment mode in recent years. These transitions appear to rarely involve a change of industry or occupation, and are consistent with workers choosing to manage their retirement in a different manner to previously. A larger number of older workers – and the full-time self-employed in particular – appear to be choosing to enter part-time self-employment, rather than retiring directly.

The results of this analysis broadly support and develop the findings of earlier papers, that the recent growth of self-employment is a continuation of a pre-existing, pre-downturn trend, but one which is only partly explained by demographics. Much of the growth in this mode of employment appears to be among workers managing their transition out of the labour market: choosing to work part-time for a period before moving to retirement. As a consequence, these data suggest that the growth of self-employment is a structural feature of the UK labour market which is unlikely to unwind with the economic recovery. Among younger workers the evidence is less clear. Although a relatively small component of self-employment, to the extent that the increase in dissatisfaction among younger male self-employed workers reflects under-employment, some of this labour supply may in time be redeployed to different uses as the recovery progresses.

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3. Authors and acknowledgements

Andrew Agyiri Amankwah and Philip Wales

The authors are grateful for contributions from colleagues at ONS, including from Ciaren Taylor, Malindi Myers, Nicholas Palmer, Fiona Massey, Peter Patterson, David Freeman, Christopher Watkins and Mark Franklin, as well as the Macroeconomic Analysis team. We also acknowledge input from colleagues in other government departments, including Simon Wood, Katy Simpson, Doug Rendle and Chris Cousins, contributors to the Bank of England Quarterly Labour Market Research Session and Matthew Whittaker of the Resolution Foundation who provided comments on an earlier version of this work. Any remaining mistakes or omissions remain our own.

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4. Introduction

The performance of the labour market and trends in self-employment are among the defining characteristics of the UK’s recent economic recovery. The headline employment rate – which fell from 73.0% in Q1 2008 to 70.1% in Q3 2011 – recovered relatively quickly, aided in part by strong growth in self-employment (Figure 1). By Q1 2016, the employment rate had risen to a record high of 74.2%, and just over 4.7 million workers were self-employed . These trends, and in particular the strength of employment relative to GDP and the resulting weakness of productivity, have posed a challenge to economists’ understanding of the labour market (ONS, 2016a). Unprecedented in the UK’s post-war economic experience, these developments have raised questions about the extent to which the shift towards self-employment is a structural or a cyclical phenomenon, the degree to which it reflects “disguised unemployment” and about the changing nature of the UK labour market.

This paper sets out to explore these questions, drawing on official sources of information on the self-employed and proceeds as follows. The first section of the paper summarises headline trends, identifying several important characteristics of the recent growth in self-employment. The second and third sections examine trends in part- and full-time self-employment respectively. They examine the characteristics of self-employed workers in different modes and how these have changed through time, in an effort to identify the drivers of the growth. They examine how the in-flows and out-flows to and from self-employment have contributed to recent developments, and they present some evidence on the earnings of individuals moving between employment and self-employment in an effort to identify the nature of recent changes. A final section offers some discussion and conclusions.

Notes:

  1. Throughout this article, Q1 to Q4 will be used to refer to the first (January to March) to fourth (October to December) quarters of the calendar year.

  2. A person is self-employed if they run their business for themselves and take responsibility for its success or failure. Self-employment can be in the form of a sole trader, a partnership (two or more people who run a business) and an owner of a limited liability company (also responsible running the business). The split between full-time and part-time self-employment is based on respondents' self-classification.

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8. Conclusions & discussion

The performance of the labour market and growth of self-employment have been among the defining characteristics of the UK’s recent economic recovery. The headline employment rate – which fell from 73.0% in Q1 2008 to 70.1% in Q3 2011 – recovered relatively quickly, aided in part by strong growth in self-employment. By Q1 2016, the employment rate had risen to a record high of 74.2%, and just over 4.5 million workers were self-employed. This growth, the strength of employment relative to output and the resulting weakness of labour productivity pose a particular challenge to our understanding of the UK labour market. This paper examines the rise in self-employment through a range of official statistics with the aim of unpacking some of the key drivers of this phenomenon.

Taking the 2008 to 2015 period as a whole, the level of self-employment increased by around 730,000: from 3.8 million to 4.5 million. Of this increase, around half was accounted for by full-time self-employment, and around half was accounted for by part-time self-employment. While it is tempting to ascribe this development to the circumstances of the economic downturn and recovery – and it may have played a part – this paper finds that these trends are better seen as a continuation of an existing, pre-downturn trend. Taking the 2001 to 2015 period as a whole -when the level of self-employment increased from 3.2 million to 4.5 million – roughly half of the increase was accounted for by full-time, and around half by part-time self-employment.

Secondly, this paper finds that part-time self-employment has played an important role in raising the prevalence of self-employment as a whole. The number of workers in this mode of employment grew by 88% between 2001 and 2015 – compared with 25% for full-time self-employment. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the share of all employment accounted for by self-employment between 2008 and 2015. While full-time self-employment continues to account for the majority of self-employed workers, but with the exception of a few, specific periods – in 2003 and 2014 in particular – its share of employment and hours has relatively stable over the last 15 years.

While part-time self-employment has become considerably more prevalent over the past 15 years, there are several trends which are common to both the full- and part-time modes. Both groups of workers have seen their age profile get markedly older in recent years. Among both sets of workers a growing number work in the finance & business services industry, with changes in usual hours worked following broadly the trends of employees. In both groups the incidence of higher occupations and long-tenures is above that of employees, and both groups are concentrated in the South East and London – with full-time self-employed workers in particular becoming more concentrated in the capital.

The evidence presented here also suggests that, in general, self-employed workers are broadly content with their labour market status. Among older part-time self-employed workers in particular, there is little evidence of workers wanting a full-time position, of job search or of dissatisfaction with their self-employed status. Analysis also suggests that those moving from employee positions to self-employment tend to have somewhat higher pre-transition hourly earnings than workers moving to new employee positions: trends which are more consistent with workers making a positive choice, rather than being forced through economic necessity to be self-employed. Among younger and mid-aged self-employed women – in particular those working part-time – the growth in the incidence of self-employment has not been accompanied by growth in the number of people who would prefer to work full-time, nor a clear uptick in the number of workers seeking an alternative job. Among younger part-time self-employed men, however, the picture is less certain. Larger portions of these workers display a greater degree of dissatisfaction with their part-time status and appear to have come directly from unemployment – possibly indicating a choice made under economic hardship. It is among these workers that evidence of under-employment is strongest.

The paper has also identified a range of labour market dynamics using the longitudinal component of the Labour Force Survey. These analyses suggest that self-employment as a whole tends to benefit from a net inflow from unemployment and from among employees, which offsets a net outflow to inactivity (Figure 42). During the economic downturn, the net flows from unemployment and from among employees fell markedly, leading to a brief net outflow from self-employment as a whole. During the recovery which followed, the net inflow from unemployment was larger – and focussed mostly on transitions to part-time self-employment – while inflows among former employees have been more focussed on transitions to full-time self-employment, and peaked during 2014. The outflow to inactivity has also declined markedly since the downturn – largely as a consequence of lower net outflows from part-time self-employment. This final result is particularly striking given the age mix of the self-employed, which has shifted towards older workers over the recent years.

Alongside these flows between other parts of the labour market and self-employment, the paper has also identified a range of intra-self-employment flows. In particular, the paper identifies rising "churn" between full-time and part-time self-employment, and while these movements do not affect the aggregate number of self-employed workers, they are instructive. To some extent, this development likely reflects changes in labour supply brought on by changes in demand conditions: in much the same way that some full-time employees worked shorter hours in response to a fall in demand during the economic downturn, self-employed workers appear to have done the same. However, older workers are also much more likely to make the transition from full-time to part-time self-employment than younger workers, and account for a large portion of the growth in this employment mode in recent years. These transitions rarely involve a change of industry or occupation, consistent with workers simply cutting their hours rather than seeking a new line of work. These trends suggest that some of the rise in part-time self-employment category is to do with workers managing their retirement in a different manner. A larger number of older workers – and the full-time self-employed in particular – appear to be choosing to enter part-time self-employment, rather than retiring directly. This in turn increases the level of participation – consistent with the analysis presented in Figure 4 – and the flow from full-time to part-time self-employment, while dragging on the out-flow to inactivity.

It is difficult to be sure whether these moves are a positive choice or a matter of economic necessity, but the evidence presented here is more consistent with the former.

What do these findings mean for the UK labour market and what implications are there for the degree of spare capacity? The results here broadly support and develop the findings of earlier papers (Tatomir, 2015), (ONS, 2014), that the recent growth of self-employment is a continuation or perhaps, an amplification, of a pre-existing, pre-downturn trend. Much of the recent growth is among a group of older workers – many of whom report broadly positive reasons for choosing to be part-time and self-employed. Much of the growth in this mode of employment also appears to be among workers managing their transition out of the labour market: choosing to work part-time for a period before moving to retirement. As a consequence, these data suggest that the growth of part-time self-employment, in particular among older workers, is a structural feature of the UK labour market which is unlikely to unwind as the economic recovery continues. Among younger workers the evidence is less clear. To the extent that the increase in dissatisfaction among younger male self-employed workers reflects under-employment, some of these efforts may in time be redeployed to different uses as the recovery progresses.

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9. References

Craig, L., Powell, A. & Cortis, N., 2012. Self-employment, work-family time and the gender division of labour. Work Employment & Society, 26(5), pp. 716-734.

Department for Business, Innovation & Skills, 2016a. Understanding self-employment. [Online] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/500305/understanding-self-employment.pdf [Accessed 15 June 2016].

Department for Business, Innovation & Skills, 2016b. The income of the self-employed. [Online] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/500317/self-employed-income.pdf [Accessed 15 June 2016].

ONS, 2014. [Online] Available at: http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/lmac/self-employed-workers-in-the-uk/2014/rep-self-employed-workers-in-the-uk-2014.html [Accessed 2016 June 2016].

ONS, 2015a. Labour Force Survey – user guidance. [Online] Available at: http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/guide-method/method-quality/specific/labour-market/labour-market-statistics/index.html [Accessed 15 June 2016].

ONS, 2016a. Economic Review: January 2016. [Online] Available at: http://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicreview/january2016#distribution-of-productivity [Accessed 13 June 2016].

ONS, 2016b. GDP and the Labour Market: Q3 2015 quarterly update. [Online] Available at: http://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/articles/gdpandthelabourmarket/q32015quarterlyupdate [Accessed 14 June 2016].

ONS, 2016c. Annual Mid-year Population Estimates: 2014. [Online] Available at: https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/bulletins/annualmidyearpopulationestimates/2015-06-25#how-does-the-population-structure-of-the-uk-compare-to-10-years-ago [Accessed 14 June 2016].

Tatomir, S., 2015. Self-employment: what can we learn from recent developments?. Bank of England Quarterly Bulletin 2015 Q1, pp. 56-66.

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Manylion cyswllt ar gyfer y Erthygl

Philip Wales and Andrew Agyiri Amankwah
macro@ons.gsi.gov.uk
Ffôn: +44 (0) 1633 651823