Increase in self-employment due to hidden unemployment?

A study by the Institute for Fiscal Studies (IFS) suggests that self-employed people are increasingly disadvantaged and that part of the rise in self-employment is due to a lack of permanent employment opportunities. According to the IFS, a quarter of newly self-employed people were unemployed immediately before becoming self-employed. In 2000 they were no more likely to have recently been out of work compared to employees, however by 2019 they were 1.5 times as likely to have been recently out of work.

Furthermore, the research indicates that self-employed people earn less than employees with average pre-tax earnings in 2018-19 being 30% lower than employees earnings. In addition, the research finds that self-employed people are “underemployed” with 12% wanting to work longer hours in 2019 compared with 9% of employees.

Interestingly, the report also suggests that well-being is higher amongst self-employed people with them having higher levels of job satisfaction, consider their lives worthwhile, and have lower levels of anxiety than their employed counterparts. These sentiments pre-date COVID19.

So it is a mixed bag of insights from the IFS research, and it is unsurprising that many newly self-employed individuals are likely to have been unemployed just beforehand. We know that redundancy situations will often result in people reviewing their options and lifestyle, which can then subsequently lead to choosing self-employment which they might not have previously considered. In addition, setting up as self-employed isn’t usually a rushed decision, and it might take time to get everything in place, which again could account for a period of unemployment beforehand.

In our experience, most people choosing self-employment do so after careful consideration, and it is usually an informed choice. The IFS research is very interesting in drawing attention to the unemployment data, however it isn’t necessarily cause for concern providing that self-employment really is an informed choice. More of a worry is the unequal earnings (of self-employed people compared to employees) and the fact that a significant number of self-employed people want to work longer hours. However these might be more than offset by the higher levels of job satisfaction of self-employed people compared to employees, and illustrates why it must be an informed choice to balance the various facets of work in order to best suit each individual.



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