The unenviable plight of the self-employed

Workers are being thrown from pillar to post by the vagaries of capitalist production in crisis.

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Over the past 20 years, we have witnessed a staggering rise in the number of self-employed workers, climbing from 2.3 million in 2000 to nearly 4 million by the end of 2019 – growth that has been entirely driven by a rise in what is euphemistically termed ‘solo self-employment’.

A recent study from the Institute for Fiscal Studies (IFS) indicates that “the vast majority (85 percent in 2019) of the solo self-employed are sole traders – unincorporated businesses with a single owner and no employees” – a group that now accounts for one in eight workers in Britain. (What does the rise of self-employment tell us about the UK labour market?, 19 November 2020)

We provide an analysis of the effect of this phenomenon on the working class as a whole.

The growth in self-employment in Britain

“In recent years, some of the most talked-about trends in the UK labour market have concerned the growth of ‘non-standard’ or ‘alternative’ forms of work. These have been central to concerns over inequalities stemming from the world of work – either because they are seen as symptoms of a situation in which good opportunities in traditional employment are no longer available for all, or because the newer forms of employment are themselves seen as helping to drive new inequalities by undermining workers’ protections or conditions.”

The vast majority of this growth stems from particularly precarious forms of employment such as independent contractors and, especially in the past few years, the rise of the so called ‘gig economy’, notorious for the prevailing poor working condition, low pay and lack of protections.

So substantial has this growth been, that it “accounts for over a third (38 percent) of all employment growth since the onset of the financial crisis” in 2008. “Notably, sole traders were the only employment group that experienced positive growth during the Great Recession.”

The briefing studies data from 1975 to 2019, finding “in 1975, one in twelve workers was self-employed” at which time “nearly half (44 percent) of the self-employed had employees”. Whereas “by 2019, this had increased to one in seven workers”, of which just 15 percent had employees of their own.

Thus, while at first glance the increase in self-employed may suggest a growing of the petty-bourgeoisie, a deeper exploration of the phenomena in fact shows it is the ranks of the proletariat that are ever enlarging – a fact perfectly in keeping with the Marxist understanding of capitalist production.

Starvation level income

With “median pre-tax earnings of £276 a week among the solo self-employed in 2018-19, compared with £395 a week among employees”, the financial state of the self-employed is not enviable in the least. When we consider the modal figure, the picture is even worse: “over half (55 percent) of sole traders earn less than £300 a week, compared with a third (33 percent) of employees”, with the largest portion (just below 20 percent) earning a meagre £100 to £200 per week.

If we consider annual income levels, this gap stands out in even greater relief. A 2019 study titled ‘Who Are Business Owners and What Are They Doing?’, quoted in the report, found “mean taxable incomes of sole traders was £21,000 in 2015-16, over £10,000 lower than for employees”.

The decline so observed was shown to be “driven by falling profits among those who remained in self-employment throughout the period, rather than by new entrants into self-employment or those who leave self-employment”.

Further, “the income sole traders derive from their businesses (that is, excluding other income sources such as private investments and pensions) is even lower, at just £12,100, and has fallen by 21 percent in real terms since the onset of the financial crisis in 2007-08”. This finding is compounded by the fact that, in 2018, “only 16 percent of the self-employed contributed to a private pension plan, with employees being four times as likely to contribute”.

Though these workers may officially work for themselves, it is evident from their income level that they are as poorly off as proletarians. Indeed, in many cases, ‘self-employment’ is merely a term to disguise employment without employment rights – as in the case of subcontracted delivery drivers, for example, who work for a single employer.

For many others, it would be utter folly to take the dogmatic view, simply because they are not on the official payroll of a single capitalist, that their petty-bourgeois existence brings with it any privilege or social status. Rather, the majority of them find themselves among the worst-paid sections of the working class, and, as such, have great revolutionary potential.

Unemployment and self-employment

With the above in mind, it may be asked why it should be that so many people are choosing self-employment rather than the relative security of working for another. In fact, though, most have very little choice in the matter.

In their 2020 paper Going solo: how starting solo self-employment affects incomes and well-being, Jonathan Cribb and Xiaowei Xu found that “44 percent of those entering solo self-employment between 2009 and 2019 were unemployed or inactive at some point in the year before entry”. Furthermore, “a substantial share of those who became unemployed or inactive in the run-up to entering solo self-employment report being dismissed or made redundant from their previous job”.

Some may suggest it is an entrepreneurial spirit that has captured workers, but it is a funny kind of entrepreneurship whereby a person is first thrown onto the scrap heap of unemployment before deciding their talents would be better spent running their own business. Rather, “solo self-employment is often something that people do when they would prefer a more typical employment arrangement but cannot find such an opportunity”.

The fact is, “in 2019, nearly a quarter (23 percent) of new solo self-employed workers were unemployed in the previous quarter, and 31 percent were economically inactive”. In times of crisis, the numbers are seen to grow rapidly: “the share of entries from unemployment doubled over the Great Recession, from 14 percent in 2008 to 28 percent in 2009 and 2010, which is consistent with people becoming solo self-employed in response to poor labour market conditions”.

The scourge of underemployment

Further evidence suggests that, having escaped the misery of unemployment, many workers who have set themselves up as sole traders find themselves only marginally better off than they were on the dole. As we have seen, their pay is likely to be lower than it was when they were employed, and they want for extra work.

“Recent survey evidence shows that, on average, the solo self-employed in the UK work 8-9 fewer hours per week than the self-employed with employees and traditional full-time employees. (Boeri et al, 2020) The data also show that around half of the solo self-employed work part-time (less than 35 hours a week), which is twice as high as the rate for the self-employed with employees.”

During times of crisis, the solo ‘self-employed’ often take the hardest hit: during the 2008 financial crash, for example, “the rate of underemployment reached 15 percent among the solo self-employed, 12 percent among employees and a mere 4 percent among the self-employed with employees”.

Compared with their ‘traditionally’ employed compatriots, the solo self-employed were, by the end of 2019, “2.6 percentage points or 28 percent more likely to be underemployed”.

The idea of excessive working hours is something of a sad dream to the self-employed, who “since the early 2000s (when the questions were first asked) … have consistently had the lowest levels of overemployment”. It can be understood that the idea of overwork might actually be a pleasant notion to many of the self-employed, who find themselves struggling to put food on the table.

A dead weight on wages

Even in the realms of bourgeois economics, “the argument that higher levels of unemployment restrain real wage growth among workers is widely recognised”.

The work of Giupponi and Xu estimates that “a one percentage point increase in the previous year’s unemployment rate is associated with a one percent decrease in real wage growth”, while “a one percentage point increase in the lagged underemployment rate is associated with a 0.6 percent decrease in real wage growth”. Moreover, “a one percentage point increase in the sole trader rate is associated with a 0.3 percent drop in real wage growth”.

As a direct result, the growing army of gig economy ‘self-employed’ acts to “reduce employees’ bargaining power with their employers by acting as a ‘reserve army’ of potential alternative employees”.

Naturally, it is the worst-off who feel the effects of this downward pressure the most: “Results show that local unemployment and underemployment mainly depress wages at the bottom of the wage distribution, which is consistent with the notion that unemployed and underemployed individuals tend to be closer substitutes of low-wage workers.”

From pillar to post

With the above considered, it is hardly surprising that so many workers are being flung from one evil to the other, from low-wage jobs to unemployment to underemployed ‘self-employment’ with little to no choice in the matter.

The latest research confirms that workers have, in a great many instances, been forced from relatively secure ‘traditional’ employment into the more precarious world of fake ‘self-employment’ as a result of economic crises. This contrasts sharply with the official narrative of a working class that has suddenly been enthused by a wave of capitalist entrepreneurship.

With the latest economic crisis, the pandemic and the government’s big-business-focused response to both, the struggles of the small-time ‘self-employed’ have only increased.

As we have seen, underemployment has long been a blight on the lives of the self-employed, but with the round after round of harsh restrictions being enacted to combat the pandemic (a response made necessary by the lack of effective health measures to stop the spread of the virus), the picture has become even more bleak.

“More than half (58 percent) had less work than usual in August, after the government lifted the first lockdown. A third of respondents had less than ten hours of work per week,” research from the Centre for Economic Performance at the London School of Economics (LSE) found.

So is it any wonder that “one in five self-employed workers plans to switch to other forms of employment because of the pandemic”? Not at all, but the type of work such workers will find is, generally speaking, utterly miserable.

The dearth of work for some has become a burden on others: “almost a third of gig economy workers, including parcel delivery workers, had more work than usual in August” as high street retail was decimated by the first lockdown and online shopping surged. (Self-employed switching to regular jobs by Gurpreet Narwan, The Times, 10 November 2020)

We reported earlier in the year just how poor the working conditions for the vast majority of parcel delivery workers are, with excessive workloads, unsafe practices and unattainable targets wreaking havoc on the mental and physical health of those so employed.

Furthermore, the government’s much-touted furlough scheme, along with its self-employment income support, has singularly failed to improve the lot of millions of workers and sole traders.

“Self-employed people who made more than 50 percent of their income through pay-as-you-earn contracts are not eligible for the scheme, and most cannot be furloughed either,” the Times reports. “Others have found they are excluded as they were paid through dividends, or had not been trading long enough to qualify.”

“Anyone who was made redundant before 23 September and who is now freelancing until they find new employment won’t be eligible for the self-employment support scheme, nor will they get anything from the government’s extended furlough scheme.” (Older people, young adults, the self-employed: the new second-class citizens by Katherine Denham, The Times, 6 November 2020)

This is the sad reality of life under capitalism, especially during a time of dire crisis: workers are lucky if they are able to make the ‘choice’ between destitution and working themselves into an early grave.

Taken as a whole, the ever-increasing number of proletarians combined with the ever-worsening conditions of life for the masses is all leading in one direction: the preparation of the ground for a real working-class, socialist organisation to organise the forces needed to overthrow this detested, decadent and thoroughly rotten system and replace it with socialism.

Only thus, and not otherwise, will workers finally be able to live lives worthy of human beings.

Further reading: A Class Analysis of Britain at the Start of the 21st Century by Ella Rule.