Self Employment

How Self-Employment has changed in the last 160 years

8 October 2015

Last week, our accountants stumbled across a huge data set produced by The Bank of England called ' Three centuries of macroeconomic data'.  They trawled through endless data to try and identify and explain some interesting trends in the labour market, specifically the growing popularity of self-employment, which is currently at record levels.  

Data sets don’t come much bigger than this. So what can it tell us? Well, as you might expect we were most interested in the data about self-employment in Chapter 22.  

Self-employment from 1855-2014

Impressively, the dataset contained multiple-source information about employment dating all the way back to 1855 – some 160 years ago.

The information included the total number of ‘heads employed’ as well as the number who were in self-employment. These two figures allowed us to calculate the proportion of working people who were in self-employment.

Self Employment 1855-2014

Our trend line shows three distinct periods. First a flat line between 1855 and the early 20th Century. This line could be accurate, in which case it tells us that there was a cemented class of self-employed people which barely grew or shrank for a long time. However, we’re not really sure how trustworthy the data is from this period.

Following this there was  period of decline in the early 20th Century and finally a period of growth out of the 20th Century and into the 21st

Self Employment 1911-2014

The modern rise of the self-employed

After a long and slow decline in the number of self-employed people between the 20s and 80s, the trend was bucked in 1981 when the proportion of self-employed people began to grow rapidly. This was partly in response to the high unemployment of that decade, but also a consequence of government incentives like the Enterprise Allowance Scheme.

Following a period of steep climbing throughout the 1980s, the trend line takes a sharp dip following the recession of the early 1990s. But it begins to pick up again at around the 1997 mark, coinciding with the rise of New Labour.

Self Employment 2000

Why are more people choosing self-employment in the new millennium? 

Clearly, self-employment relative to total employment has been rising for some time. The percentage of self-employed people has risen steadily from 11.8% in 2000 to 14.8% in 2014. The total number of people in self-employment has also risen from 3.25 million at the millennium to 4.55 million last year. So how do we explain this?

There are a number of likely causes. Many will say that the conditions for enterprise, or at least small enterprise, became more favourable in the new millennium. A range of enterprise-expanding policies and funding options, as well as a generous self-employment tax rates turned more people on to the idea of establishing their own business. 

Other potential causes have more to do with trends in society. Some people believe the recent rise in self-employment relative to full employment, has something to do with more so-called ‘millennials’ entering the labour market. According to a large portion of the business-press, this next-generation workforce is motivated more by the flexibility which comes with self-employment. 

In contrast to plummeting levels of self-employment after the recession of the early 1990s, the 2008 financial crash saw record levels above 4 million. This helped to plug the half million jobs shortfall following the pre-recession peak.

While the recent rise in self-employment sounds like good news to the enterprising classes, some experts think that it is due to weak demand in the jobs market rather than a sign of the economy’s strength. 

One explanation is that older employees who perhaps aren’t ready to retire, but want to enjoy a little more freedom in their old age, have been turning to self-employment as a way of reclaiming control over their work-life balance. After the 2008 financial crash, the explanation runs that many workers chose to become self-employed instead of abandoning the labour market completely.

We’ve offered a few explanations about events influencing self-employment. Do you have any additional thoughts? We’d love to hear them. Send us your analysis via Twitter and we’ll publish the best ones on our blog.