‘Rise in freelancing due to lack of other jobs’

The rise in freelancers in the last few years is in part explained by a lack of opportunities in traditional employment, according to a new study by the Institute for Fiscal Studies.

It charts the dramatic rise in self-employment in recent years, entirely driven by solo traders and owner-managers with no employers. This is up from 2.3 million in 2000 to nearly 4 million by late 2019. It finds that this group is increasingly disadvantaged.

The report finds:

• A quarter of the newly solo self-employed were unemployed immediately before embarking on self-employment, with a big spike following the 2008 recession which has continued to 2019.  In 2000, the solo self employed were no more likely to have been recently out of work than employees, but by 2019 they were nearly 1.5 times as likely to have been.
• The solo self-employed earn less than employees on average and the gap has widened over time. Average (median) pre-tax earnings in 2018–19 were 30% lower than among employees.
• Many solo self-employed workers are ‘underemployed’, with 12% wanting to work longer hours in 2019, compared with 9% of employees. The gap between them and employees has widened over time.
• The more solo self-employment there is in an area, the more employee wages are held down. The report says this suggests that some solo self-employed are providing a ‘reserve army’ of potential employees which reduces the bargaining power of actual employees and hence their wages.

Xiaowei Xu, a Senior Research Economist at IFS and an author of the report, said: “Taken together, the evidence in our report suggests that solo self-employment is often a fall-back option for workers who face bleak prospects in traditional employment. Covid-19 has now made these prospects even worse. It is important to try to find ways of supporting people which recognises that some self-employment is really akin to hidden unemployment, rather than people pursuing appealing business opportunities.”

There has been much concern in the last months about the financial support available to the self employed compared to the employed, with many thousands of self employed people missing out on any help and others, such as women who have taken maternity leave in the last four years, facing reduced payments. A report from IPSE and Starling Bank shows that women freelancers have been the most impacted by the pandemic.

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