Despite what the Government says, people are not better off. And the self-employed are likely to be suffering more than most

More self-employed report that they do not have adequate work and want more hours

Share

The battle over what is happening to living standards continues. They are down a lot under the Coalition, despite its spin saying they are up – which they demonstrably are not, as I have noted several times in this column.

In The Times on the 24 January, Matthew Hancock, the minister for skills and enterprise, argued in a column entitled It’s True: We’re Better Off than a Year Ago that “over the past year, from 2012 to 2013, things have started to turn around. New facts on take-home pay – the pound in your pocket – are stark. Last year take-home pay grew faster than inflation for every group of earners except the top 10 per cent.”

This claim turns out to be total baloney. Real wages, and hence standards of living, are falling, and continue to fall for all but a few at the top. These falls have been tempered for home owners by the drop in the interest rate on their mortgages.

In response to such ludicrous claims last week, the Office for National Statistics published a response showing exactly the opposite. The chart below, taken from the ONS study by Taylor et al*, plots real wage growth since the first quarter of 1964 based average weekly earnings (AWE) deflated by the Retail Prices Index. It shows the percentage change on the same quarter a year earlier. Annual real wage growth averaged 2.9 per cent in the 1970s and 1980s, then roughly halved to 1.5 per cent in the 1990s. The rate slowed again to an average of 1.2 per cent in the 2000s, and real wages fell by 2.2 per cent a year between Q1 2010 and Q2 2013, so are down by more than 6.5 per cent since the Coalition took office.

There is no chance that this decline in real wages will be restored by the time of the May 2015 election, even if real wage growth turns positive at some point over the next 15 months or so, which still looks unlikely. The chart also shows that the recent episode of falling real wages under this Coalition is the longest sustained period of falling real wages in the UK for 60 years. No other episode comes close.

According to the Labour Force Survey, nominal wages are falling at both the median and the mean for full-time workers. So Hancock is badly wrong, sorry – and that’s official as the ONS has confirmed it. Plus Hancock’s claim takes no account of the cuts to in-work and family benefits the Coalition has introduced, or the rise in VAT. The Institute for Fiscal Studies also warned in its Green Budget last week that there are many more cuts to come.

There are additional concerns about living standards given that we have no recent estimates of the earnings of the self-employed as they aren’t covered by the ONS in any of its published wage and earnings series. This matters given the rapid rise in the numbers of self-employed since the coalition was formed in May 2010.

In April-June 2010, there were 24,830,935 employees and 3,923,724 self-employed; in the latest data for September-November 2013 there were 25,536,595 employees (plus 705,660) and 4,355,819 self-employed (plus 432,096). So even though self-employment today accounts for only 14 per cent of total employment, it accounts for more than a third of the increase over this period.

It turns out that there are a number of things we know about self-employment. The first is that higher self-employment rates appear to be uncorrelated with any positive macro outcome, so a higher proportion of self-employed doesn’t seem to be associated with higher output or lower unemployment.

Even though in theory a higher self-employment rate suggests increased labour market flexibility, a higher self-employment rate doesn’t mean that a society is more entrepreneurial, for example.

An extra 200,000 new self-employed workers may not be as entrepreneurial as one more Bill Gates. It also turns out that despite the fact that mean self-employment earnings are higher than mean employee earnings, this is driven by the fact that the mean is pulled up by a higher top end. The typical self-employed worker earns less than the typical employee, plus we should note that self-employed earnings are not bounded above by zero but can include negative values or losses.

When asked, approximately half of employees say they would like to be self-employed, but most don’t make the switch. Being self-employed is risky, and huge proportions fail. They then lose their jobs, their savings, sometimes their homes and not infrequently, their marriages. Self-employment is an inherently risky, low-paying activity that most people should avoid if only for their mental health. Those who succeed can make a lot of money and that is the attraction, of course. But most don’t.

In a recent paper, Richard Murphy** has made use of data on self-employed earnings from HMRC up to 2010-11 based on how much the self-employed say they earn. This is the main source for data on self-employed earnings, which is sadly not terribly recent. Mr Murphy first notes the remarkably low level of income that a great many of the self-employed earn.

He found 83 per cent reported incomes of less than £20,000 in 2010-11, with 14 per cent earning zero or negative while 95 per cent earned less than £50,000. Less than 2 per cent earned over £100,000. Mr Murphy also notes the decline in the income over time for the self-employed, which suggests that the earnings of the self-employed have also fallen recently, both in nominal and real terms.

So excluding the earnings of the self-employed may mean the extent of the drop in living standards has been understated as their earnings are likely to be more flexible downwards than that of employees. Indeed, there is evidence that a considerably higher proportion of the self-employed than employees report that they are under-employed, do not have adequate work and want many more hours.

The Labour Party will be able to claim: You are worse off under the Tories in May 2015 than you were in May 2010.

*Ciaren Taylor, Andrew Jowett & Michael Hardie, An Examination of Falling Real Wages, 2010-2013, Office for National Statistics, 2014

**Richard Murphy, Disappearing Fast: The Falling Income of the UK’s Self-employed People, Tax Research UK, November 2013

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

VB.Net Developer - £40k - Surrey - WANTED ASAP

£35000 - £40000 per annum + competitive: Progressive Recruitment: .Mid Level V...

Digitakl Business Analyst, Slough

£40000 - £45000 per annum + Competitive Benefits: Progressive Recruitment: Dig...

Mechanical Estimator: Nuclear Energy - Sellafield

£40000 - £50000 per annum + Car, Medical, Fuel + More!: Progressive Recruitmen...

Dynamics NAV Techno-Functional Consultant

£50000 - £60000 per annum + benefits: Progressive Recruitment: An absolutely o...

Day In a Page

Read Next
'Our media are suffering a new experience: not fear of being called anti-Semitic'  

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk
David Cameron (pictured) can't steal back my party's vote that easily, says Nigel Farage  

Cameron’s benefits pledge is designed to lure back Ukip voters. He’ll have to try harder

Nigel Farage
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices