Our job market is in flux. A rise in self-employment poses both threats and dangers to Britain’s economic future

By no means all of the self-employment spike is involuntary

Policymakers and analysts are trying to get their heads around one of the most striking developments in our economy over the past decade: the explosion of self-employment.

The number of people in Britain classified as working for themselves has shot up by almost 650,000 since 2008. That’s taken the self-employed proportion of the workforce to 15 per cent, its highest level on record. Around half of the increase in total employment since the Coalition formed in 2010 has been accounted for by self-employment. The way we work in Britain seems to be changing. But is this a change for the better? Will it prove to be a permanent shift? And what (if anything) should we do about it?

Two narratives tend to dominate. Some lean to the view that a large share of self-employment is actually disguised unemployment or represents laid-off employees who have been rehired by cost-cutting firms as temporary contractors on inferior pay and conditions. Others see it as a welcome flowering of entrepreneurialism, with empowered workers increasingly seizing the opportunity to be their own bosses. Both are likely to be caricatures.

By no means all of the self-employment spike is involuntary. A survey by the Resolution Foundation think tank has found that three quarters of the self-employed they questioned were content with their position. Part of the story involves older people who would once have retired establishing themselves as consultants and remaining in the workforce to bolster their incomes. Nor is this just a recession phenomenon. The numbers working for themselves began to increase before 2008, suggesting a structural shift. There might also be bigger economic forces at work too, such as the automation of jobs and outsourcing of some white-collar occupations abroad.

Yet there are also strong indications of underemployment among the self-employed, supporting the idea that many will flow back to firms as the economy continues to recover. There is also evidence that the incomes of the self-employed have been squeezed harder than those of employees in recent years. Even allowing for the fact that some self-employed people are content to work part-time, many are suffering economically as a result of lower hours.

Coalition reforms on benefit eligibility appear to be further encouraging the shift towards self-employment. This could be helpful if they are nudging citizens back in to the workforce in a sustainable fashion. But if, as some suspect, people are only registering as self-employed, in order to claim tax credits while essentially doing little or no work, that puts a rather different complexion on matters.

It is too soon come to a firm view on the rise in self-employment and its implications. The official statistics do not capture what is going on in this section of the labour force particularly well. But if the rise does turn out to be sustained, and if the trend continues, policymakers will need to come up with a response which balances legitimate concerns over security and fairness for these workers with the imperative of laying the foundation for future productivity and growth. It is as well that they get their thinking caps on now.