Understanding self-employment Drew Hird, Enterprise Statistician 2 - - PowerPoint PPT Presentation

Understanding self-employment

Drew Hird, Enterprise Statistician

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Introduction

• The self-employed population continues to grow strongly
• We know they are a diverse group, with some shifting demographics
• Today we’ll see what they told us about their choices, how they view their situation, the

difficulties they face, and how they manage their life in self-employment

• And then take a brief look at what we’ve found out about trends in self-employed income

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Thousands

UK Self-employed population 1984-2015

Source: four quarter average of ONS Labour Market Statistics

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The BIS self-employed survey

• Interviews with 1,423 previous respondents to the Labour Force Survey, who had been

self-employed in their main job

• Responses weighted to the number of self-employed people in the Annual Population

Survey 2014

• The 195 individuals who reported they were no longer self-employed in their main job

were asked a shorter set of questions

• To gain some insight about how self-employment compares with being an employee we

asked respondents about their beliefs and opinions

• In some cases invited them to compare self-employment with a hypothetical ‘similar’

employee job

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The decision to enter self-employment is more likely to be driven by opportunity than necessity

• In keeping with other sources, most common reasons for entry are opportunity-driven
• It’s not always simple: 49% said more than one factor contributed to their decision
• 6% said they were encouraged into self-employment by their (then) employer

0% 20% 40%

Opportunity to work around a health issue Employer at the time wanted me to move into self-employment Continuation of a family business None of these Could not get a job as an employee in type of work wanted and in local area Needed to work around childcare or other commitments Previous job came to an end, including redundancy Saw a specific gap in the market or business opportunity Being self employed is normal for job do

Contributed to taking up current self-employment (all that apply)

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The key motivations when starting do not tend to be financial

• On average people reported three benefits and 85% more than one
• Benefits reported most often were having flexibility, independence, and job satisfaction
• 46% said having more time or flexibility was the main advantage – less than 10% said

earning more money

0% 20% 40% 60% 80% 100% All that apply Main advantage

Advantages of being self-employed rather than working as an employee

Have more independence Have more time or flexibility Get more job satisfaction Earn more money Pay less tax None of these

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Most people in self-employment have no plans to leave

• Over 80% expected to be in self-employment for at least the next 3 years
• Less than 1 in 10 were planning to leave within a year
• Some unsurprising differences by age – also drives the part-time finding

0% 20% 40% 60% 80% 100% All Male Female 16 to 34 35 to 44 45 to 54 55 to 64 65 and

• ver

Full-time Part-time

Whether expect to leave self-employment in next 3 years

No plans to leave in next 3 years In 2 to 3 years time In the next year

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The majority of those planning to leave will retire

• Less than two fifths of those who planned to leave in the next 3 years will be economically

active on leaving

• A fifth of the self-employed either already had plans to retire or would be retired if they did stop
• 6% of all people in self-employment plan to leave and work for an employer
• Again, people’s plans have a clear association with age

0% 20% 40% 60% 80% 100% All 16 to 34 35 to 44 45 to 54 55 to 64 65 and

• ver

Plan to leave in next 3 years: what expect to be doing

Retire Take a break from working for family reasons Take a break from working to study Other Work for an employer in a voluntary or unpaid role Work for an employer in paid role

0% 20% 40% 60% 80% 100% All 16 to 34 35 to 44 45 to 54 55 to 64 65 and

• ver

No plans to leave: what would be doing if not in self-employment

Retired Not working and not looking for work In training or education Not working but actively looking for work Working for an employer in a voluntary or unpaid role Working for an employer in paid role

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Most think life overall is better in self-employment

• 84% thought life was better overall; just 7% said it was worse than being an employee
• Job satisfaction is clearly high – suggests motivations being realised?
• The majority thought they were financially better off
• We had some interesting findings for the third who said they were financially worse off…

0% 20% 40% 60% 80% 100% Life overall Financially Job satisfaction

Better or worse off in self-employment compared to being an employee doing something similar

Worse off About the same Better off

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Most of those who are financially worse off still have no plans to leave…

• 74% of those who thought they were financially worse off still thought their life overall

was better (not shown in chart)

• This is reflected in plans to leave:

– 4 in 5 had no plans to do so in the next 3 years – Just 1 in 10 were planning to leave in the next year

0% 20% 40% 60% 80% 100% Better off Worse off About the same

Plans to leave, variation with views on whether financially better

• r worse off in self-employment

No plans to leave in next 3 years Plan to leave in 2 to 3 years time Plan to leave in the next year

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But some do say they experience big problems

• None of the issues we asked about was a big problem to more than 30% of the self-

employed

• We did find 56% experienced a ‘big problem’ in at least one area (when prompted)
• But we didn’t find an effect on plans to leave within the next year
• An area for more research – to understand actual impact and compare vs employees

0% 20% 40% 60% 80% 100% Not getting paid if fall ill or take time off Not being able to save enough for the future Not having enough customers or work Not knowing how much income will have from month to month Not having security of being a paid employee Understanding how to do paperwork eg tax rules and reporting Struggling to balance work and family life Isolation or working alone

Extent to which this is a problem of being self-employed

Not a problem Something of a problem A big problem

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The most common issues when applying for financial products are around mortgages

• Over half of those applying for a mortgage in the last 5 years felt that being self-

employed caused difficulties with their application

• But this isn’t a problem many face regularly
• Again, more research needed to understand extent and compare vs employees

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% mortgage rental accommodation credit card personal loan business loan personal insurance business insurance

Applications made in last 5 years - respondents who thought being self-employed caused difficulties

% yes of those applying in last 5 years % yes of all self-employed % no of all self-employed I have not applied for this in the last 5 years

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Most have more plans for funding retirement than just using their state pension

• Across all age groups 30% said they had a pension they were paying into
• But almost 80% were doing something besides relying solely on a state pension
• And considerable variation in amount of activity by age
• Further research needed to establish whether overall value of the arrangements people

make will allow them to be comfortable

0% 20% 40% 60% Sell business to fund retirement Rely on state pension Use partners income or pension Have a pension from previous employment Have a pension pay into whilst self- employed Live on rental

• r sales

income from property I own Have other financial investments Have not made any plans Other

Plans for funding retirement (all that apply)

16 to 34 35 to 44 45 to 54 55 to 64 65 and over

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• Taking account of multiple responses we found 63% said they had some additional

income stream other than benefits and tax credits

• 43% had additional income that wasn’t any of partner’s income, benefits or tax credits

Most self-employed people have additional sources of income

0% 10% 20% 30% 40% Other Other employment or partnership income State benefits State pension Tax credits Trusts, interest or dividends Rental or other property income Private pension None Income from a partner or other family members

Sources of income besides self-employment earnings (all that apply)

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0% 20% 40% 60% 80% 100% All Male Female 16 to 34 35 to 44 45 to 54 55 to 64 65 and

• ver

Full- time Part- time

Extent to which I rely on my income from self-employment

I do not rely on this income Allows me a bit of extra money for luxuries Allows me to maintain the lifestyle I expect Allows a basic standard of living and not much more Only have enough income because get tax credits and or state benefits as well

The income from self-employment appears to be relatively discretionary for some, but some don’t have enough

• Almost 30% said they either used self-employment to fund luxuries or did not rely on the

income at all

• But just over 30% had only a basic standard of living or worse

– Yet around three quarters of these people thought life overall was better for them in self-employment than it would be as an employee

Measuring self-employed income is a complex task

• Not always obvious which population to look at

– Anyone earning self-employed income? – Anyone whose main activity is self-employed? – Choice will substantially change average values – And selection of means or medians has a big effect

• Data accuracy and completeness/coverage can be issues – in both

administrative and survey data

– Varies month to month – Different forms of income – Potential for under-declaring? – May not be clear separation between personal and business life

But overall trend is falling income for the group as a whole

• Family Resources Survey collects data using consistent methodology over time – the

trend should be fairly reliable

• Shows a clear pattern of falling incomes, more pronounced for the self-employed than for

employees

5000 10000 15000 20000 25000 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Estimated median annual income from self-employment compared to median earnings from employment (2013/14 prices)

All self-employed All Employees

But the composition of self-employment has been changing

• We know from the Labour Force Survey there are now more women and more older

people in self-employment

• Also there has been more of an increase in people working fewer hours
• So we might expect some effects on average earnings
• The FRS shows us the earning profile for women and men is quite different… but

also that there are different trends

Estimated median annual earnings from self-employment and from employment, by gender (2013/14 prices) Male and female self-employment (Index 2008=100)

Those staying in self-employment are doing fine overall

• Used Understanding Society data to isolate what’s happening to the same individuals over

a period of several years

• Earnings from self-employment have fallen less dramatically than the overall average
• And total income has remained fairly stable over time

5000 10000 15000 20000 25000 2009-10 2010-11 2011-12 2012-13 2013-14

Estimated median annual income from self-employment and from all sources, for those who are self-employed in each year

Median gross income from self employment Median gross income from all sources

So now we need to go further to try to understand more…

• Much more to do to properly understand what’s happening
• We need to do more in-depth exploration of influences on earnings, ideally:

– Look at Household Composition and other earners – Links to wealth – less need for high earnings? – Try to understand relationship to spending

• Exploration of more/different data

– BIS project to explore HMRC Self-Assessment data – Regular updates of existing sources – Potentially linking business data to data on individuals?

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Further information

The reports

Understanding Self-employment – self-employment survey results, BIS (2016) The Income of the Self-employed, BIS (2016)

Contextual data/analysis

Self-employment In The UK, BIS (2015) Self-employed Workers In The UK, ONS (2014)

Key contacts

drew.hird@bis.gsi.gov.uk andrew.ledger@bis.gsi.gov.uk

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Demographic changes

• Women’s share of self-employment risen from 27% in 2008 to 32% in 2015
• Number of self-employed women up by more than a third, compared with 10% for men
• Overall the increase in female self-employment is 58% of total increase since 2008

Self-employment by age group (Index 2008=100) Male and female self-employment (Index 2008=100)

• Sharp increase in the number of the self-employed who are over 65: doubled since 2008
• 10% of total in 2015, compared with less than 6% in 2008: a third of total growth
• The 50-64s accounted for 40% of the total increase, but 25-49 group has been largest

group throughout