salvation in a start-up? the origins and nature of the self-employment boom

8/12/2019 Salvation in a Start-up? The origins and nature of the self-employment boom

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Salvation in a start-up? Theorigins andnature of the

self-employmentboom

Benedict Dellot

May 2014


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Contents

Acknowledgements 4

Foreword 5

Executive summary 7

A fertile crisis 12

A booming community 18

Busting some common myths 24

Five ingredients behind the boom 29

The six tribes of self-employment 39

The virtuous toil of self-employment 51

Adjusting to the new normal 62

Next steps 70


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The RSA inpartnership with


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About the RSA

About the RSA

The RSA (Royal Society for the encouragement of Arts, Manufactures

and Commerce) believes that everyone should have the freedom andpower to turn their ideas into reality something we call the Power toCreate. Through our research and , -strong Fellowship, we seek torealise a society where creative power is distributed, where concentrationsof power are confronted, and where creative values are nurtured. The RSAAction and Research Centre combines practical experimentation withrigorous research to achieve these goals.

About Etsy

Etsy is an online marketplace for handmade goods and vintage items.Founded in New York City in , it allows people around the world tobuy and sell unique goods directly from each other anything from foodto furniture. In alone, Etsy sellers sold nearly $ m worth of goodsand million new members joined the marketplace, making their globalcommunity million strong.

Etsy offers a meaningful and personal shopping experience to consum-ers and gives independent, creative businesses around the world the toolsto be successful. Their mission is to reimagine commerce in ways thatbuild a more fullling and lasting world.


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Salvation in a start-up? The origins and nature of the self-employment boom

Acknowledgements

The RSA would like to thank Etsy for their support, without which the

project would not have taken place. The author is very grateful to AdamLent in particular for his help in guiding the research over the courseof the project, as well as to Matthew Taylor, Julian Thompson, LukeRobinson, Howard Reed, Steve Broome, Jamillah Knowles (Etsy) andNicole Vanderbilt (Etsy) for their useful feedback.

Beyond the RSA, thanks must go to Steven Toft for his insights, as wellas to all the members of our steering group (see below) and the organi-sations that assisted us in identifying our interviewees. This includesPRIME, A e, Enterprise Rockers, Find Invest Grow, Telford EnterpriseHub, Sunderland Council and the team at Goldman Sachss , SmallBusiness Programme. Last but not least, we are extremely grateful to all ofthe self-employed people that were willing to share their experiences withus, as well as to Chris Menzies at Populus and Gary Bennett from LogitResearch for their assistance in undertaking the survey and segmentation.

Steering group: Jamillah Knowles, Nicole Vanderbilt, KristinaGlushkova, Steve Coles, Philip Coggan, David Nash, Howard Reed,Elizabeth Varley, Tom Hodgkinson, Victoria Hull, Mark Hart,Stuart Anderson, Tina Boden, Emma Jones, Jo Caseborne andRobert Blackburn.

Photographs taken by Toby Coulson (pp. , and );Roberta Knox (p. ); Ben Saffer (p. ).


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Foreword

Foreword

I stopped working in Downing Street a year ago to have a crack at starting

my own business. That means I can admit something that everyone inWestminster knows, but isnt allowed to say: most policy reports are notonly boring, but theyre utterly pointless too.

This fantastic piece of work, Im pleased to say, is neither.Its not boring, because it tells the gripping story of Britains entre-

preneurial rebirth from the late s onwards, as the number of smallbusinesses in our country mushroomed from just , in to over

m today.And its certainly not pointless, because this report utterly destroys

the argument that the growth in microbusinesses is somehow a symptomof economic desperation and something to be mourned, rather thancelebrated.

As the Populus survey commissioned by the RSA reveals, less thanone in ve people started their own business because they had no otheremployment options the overwhelming majority did so because theywanted to.

This survey data also shows that these wannabe entrepreneurs wereabsolutely right to trust their instincts, with around percent of micro-business owners reporting that they are now more creative, autonomousand satised in their work.

Small wonder that less than one in ten self-employed people, accordingto the Populus data, plan on closing their business in the next ve years.Once you start working for yourself, its hard to go back to working forThe Man, man.

Over and above these lifestyle factors, technology is playing a hugepart in driving Britains entrepreneurship boom. Online platforms meanthat microbusinesses can reach a global market more cheaply and easilythan ever before, while technology is also reducing transaction costsbetween businesses, enabling tiny companies to prosper and ourish inthe modern economy.

Ultimately though, this huge growth in microbusinesses over the past years much like Chinas economic growth over the same period is

a welcome regression to the mean after a stultifying spell of top-downbureaucratic control and suffocating statism.

There can be no going back from here. For millions of people acrossthe UK, entrepreneurship is the new normal and with the number ofself-employed people expected to exceed the headcount of the publicsector by , politicians and policymakers urgently need to keep pace.

Everywhere you look, things need to change. Our ruinously uncom-petitive banking system continues to fail Britains small businesses,entrepreneurs are discriminated against when renting or buying property,while almost every aspect of Whitehall activity from consultations toprocurement is unfairly stacked against microbusinesses.

This is a golden age for entrepreneurship in Britain. If we can get thepolicy framework right to support our entrepreneurs, the future will be


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very bright indeed. Thanks to this excellent report, Britains micro-business owners now have a voice, and can start to campaign for abetter deal. If thats not the opposite of boring and pointless, I dontknow what is.

Rohan Silva

Co-Founder of Second Home


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Executive summary

Executive summary

The UK is experiencing a boom in microbusinesses and self-employment.

Today there are , more microbusinesses (rms with zero to nineemployees) in existence than there were when the recession rst beganin , and percent more than at the turn of the century. Likewise,the number of people working for themselves has increased by around

percent since , with the result that one in seven of the workforceare now self-employed. Nor does this trend show any signs of abating;

, more people became self-employed in the rst quarter of .This phenomenon throws up a number of important questions. What

types of microbusinesses are becoming more commonplace? What hascaused the large increase in recent years? And what effect are they havingon the economy and wider society? The RSA and Etsy have launched anew project, The Power of Small, which seeks to answer such questionsand better understand this changing community. Future phases of the pro-ject will consider the broader macroeconomic implications of a growingnumber of microbusinesses, such as what it means for jobs growth, innova-tion and productivity. However, this report the rst of three focuses inparticular on the individuals involved, including why so many people areturning to self-employment and what this means for them personally.

Our analysis shows that the self-employed are a diverse group under-going a gradual but important change. The number of people runningmicrobusinesses is growing substantially, yet the real activity appears tobe happening at the small end of small, with the part-time self-employedaccounting for much of the business activity witnessed in recent years.There are also signs that certain demographic groups are increasinglyturning to self-employment most notably women, the over s andyoung people and in doing so are disrupting entrenched stereotypes.This much is acknowledged by most commentators in the eld. However,there is considerable disagreement over what has caused such changes,and whether the boom is part of a long-term recalibration of oureconomy or simply a cyclical blip.

Our research identies three myths in particular that have distortedthe debate the rst being that most of the newly self-employed are

there through no choice of their own. While levels of unemploymentand self-employment are positively linked, this is only one part of thestory. Our RSA/Populus survey nds that only percent of those whostarted up in the recessionary period of the last ve years did so to escapeunemployment. A second myth is that most of the newly self-employedare low-skilled odd-jobbers scratching around for work. But look closerat the data and we see that the biggest increases in self-employment since

have actually been in professional occupations (one of the highestskilled groups). Finally, there is the myth that the boom we are witnessingis a cyclical blip. Yet this ignores the fact that self-employment had beenincreasing long before the recession began.

Taken together, this suggests that the growth in self-employment is asmuch to do with structural changes in our economy and society as with


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short-term economic uctuations. By their very nature, such long-termtrends are difficult to pinpoint while they are unfolding. However, we haveidentied several key ingredients that may help to explain this boom yet which are often overlooked in mainstream debates. Demographicshifts, such as an ageing population and high levels of immigration mayhave served to bump up the numbers in self-employment, since these

groups are more likely to start up in business. Similarly, a gradual shiftfrom materialist to post-materialist values means that greater numbersof people now prize the freedom and meaning that comes with self-employment. Moreover, the emergence of new technologies which weoften take for granted have sent the cost of doing business into freefall.

Each of these drivers tells us that the push vs. pull hypothesis thatis commonly used to explain why people start up in business will nolonger suffice. Indeed, the self-employed community is a heterogeneousone, with every person having a different set of circumstances, businessstyles and aspirations. For this reason, we used the data from our RSA/Populus survey to segment the self-employed community into six tribes(see Figure ). This ranges from Visionaries, who are optimistic, growth-oriented business owners driven by a particular mission, all the waythrough to Dabblers, who are more often than not part-timers engaging inbusiness to do something more interesting in their spare time. Generatingthis typology is not an academic exercise. Rather, it is crucial to the abilityof policymakers and others to create targeted interventions that go with,rather than against, the grain of peoples needs and wants.

Figure 1: The six tribes of self-employment

22% 13% 11% 24% 19% 11%

VisionariesOptimistic, growth-oriented businessowners who are usually driven by amission and a sense of purpose. Theyare more likely to be younger and male,and to employ many employees.

*Percentages refer to the proportion of the self-employed community who fall into these tribes

ClassicalsGenerally older, these embody thepopular image of the entrepreneur. Theyare largely driven by the pursuit of prot,and think the business is the be all andend all.

IndependentsFreedom-loving, internet-dependentbusiness owners who are driven bythe opportunity to vent their creativetalents. They are typically younger andleft-leaning.

LocalsRelaxed and generally free from stress,these operate low-tech businesseswhich serve only their local community.They earn a modest income and manyare close to retirement.

SurvivorsReluctant but hard-working individualswho are struggling to make ends meet,in part due to the competitive marketsthey operate in. They earn less fromtheir business, and are more likely tobe younger.

DabblersUsually part-timers, their business ismore of a hobby than a necessity. Alarge number are retirees seeking to dosomething interesting in their spare time.


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Executive summary

The question remains, however, as to whether self-employment isreally a good thing for those directly involved. Should we be enablingmore people to start up in business, or should we be discouraging it?At rst glance, life appears to be very difficult for the self-employed.Full-timers earn approximately percent less than their employedcounterparts, and real median weekly earnings have shrunk by around

percent since the turn of the century. They also seem to work longerhours twice the number spend over hours a week at work asemployees as well as to be at risk of isolation.

Yet look at this community more closely and we nd that a paradoxexists: they appear to be more content at work and happier overall intheir lives. Our RSA/Populus survey found that percent agreed thatbeing self-employed meant they were more content in their working lives( percent completely or strongly so). The same story is borne out ina number of other studies. Part of the reason is because of the softerbenets that self-employment can confer. Of those polled in our survey

percent said the work they do is more meaningful than that found ina typical job, and percent that they have more freedom to do the thingsthey want. Yet there are also many practical benets gained from workingfor yourself. Over half of the people we surveyed said that being self-em-ployed allows them to work around their own physical health conditions,and over a third to be able to care for older relatives.

Overall, there appears to be a subtle trade-off at play when peopleembark on a business something that might be called a creative com-promise . On average, full-time self-employed people earn a week lessthan their employed counterparts, but many are willing to endure thissacrice for the multitude of other benets that come from working foryourself namely greater freedom, meaning and control. Indeed, oursurvey indicates that a large number of the self-employed prioritise thesesofter attributes of work over the harder ones. Only a fth ( percent)of our respondents said high pay is a priority in their jobs, and only percent a short working week. This nding suggests that many of theself-employed see the work as an end in itself and an inherently enjoyableactivity (a concept that is still foreign to large parts of society).

It is unlikely that the heated debates around this phenomenon willcool anytime soon. If anything they are likely to grow as the magnitudeof the changes dawns upon more of us. Yet this should not prevent usfrom starting a vital conversation regarding how we should adjust to

the new normal. In this report, we outline a number of imperativesfor the future. The rst is to rewrite the narrative on self-employment.At present, there is a real danger that the term self-employment becomessynonymous with drudgery and on a par with zero-hour contracts. Thendings of this report point to the need for a more balanced narrativeon self-employment one that does not drown in the hyperbole that cansurround entrepreneurship, nor one that treats self-employment as asink for the desperate and needy. A good starting point would be to for-mulate a common denition of self-employment, as well as to improveour measurement tools so they more accurately capture the changes inthis community.

The second imperative is to agree a new settlement . Despite the vastmajority enjoying their self-employed status, we cannot ignore the various


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nancial pitfalls that accompany this way of working. Not only are theself-employed paid less, they are also known to contribute less to pensionsand be at an acute risk of falling into debt. Such issues are particularlyproblematic for those identied in our segmentation as Survivors. Thetask for the government and others is therefore two-fold: rst, to helpthose for whom self-employment really is a last resort into a conven-

tional job; and second, to improve the livelihoods of the vast majority ofpeople who genuinely want to continue working for themselves. In doingso, we should be mindful of the different needs and wants of the six tribeswe identied in our segmentation.

Our RSA/Populus survey indicates that at present, the self-employedlargely feel as though they are overlooked by the state. Only percent ofrespondents agreed that the government adequately supports people likethem, and only percent that the welfare system is fair to those who wantto work for themselves. Part of the reason seems to be because the self-em-ployed are occasionally treated as an afterthought in the design of policyinitiatives Universal Credit being a major case in point. This highlightsthe need for an urgent review of government policy on self-employment from welfare and taxes, all the way through to education and housing.One possible outcome is the development of a exible National Insurancesystem, with the self-employed able to decide on their level of contribu-tions depending on how much they want to receive back in social security.

Yet it would be improper to leave everything up to the state, notleast when the welfare system is undergoing a signicant retrenchment.Therefore we should also aim to harness the crowd . A good place to startis by encouraging the trade unions to support the self-employed, giventhat they not only lobby on behalf of their working members but alsoassist them in legal cases and provide cost-effective insurance schemes.Inspiration can be taken from the Freelancers Union based in the US,many of whose , members have signed up to access benets rang-ing from retirement plans to liability insurance. The development of newcollaborative ventures that see the self-employed band together like theBEC co-operative in France may also be highly effective in ensuring thiscommunity achieves more than the sum of its parts.

Finally, it is imperative that we stimulate growth and recruitment . If theincrease in self-employment is to be permanent then it spells major impli-cations for the economy particularly in terms of job creation. Indeed,very few of the self-employed that started up in the last ve years have

gone on to take on employees. The government has implemented severalinitiatives designed to encourage job creation among microbusinesses, forinstance through a National Insurance Contribution holiday. Yet thesehave had remarkably low take-up rates. This indicates the need for a freshapproach one that does not rely exclusively on clunky policy levers butwhich instead recognises peoples behavioural quirks and frailties (the RSAwill report on the psychological barriers to recruitment later this year).

No doubt the debates around this phenomenon will continue long intothe future and indeed they should. Yet whatever peoples viewpoint onthe growth in self-employment, most would agree that it is essential webegin searching for effective interventions and policy solutions that willimprove their livelihoods. With one in seven of the workforce now self-employed, we cant afford not to.


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Executive summary

Box 1: Key ndings from our RSA/Populus survey

The RSA commissioned Populus to run a survey of 1,006 microbusinessowners between 26 February and the 12 March 2014. Our results show that:

Over a third (37 percent) agree that being self-employed means theyare less able to take holidays and breaks, and 40 percent that they feel

more isolated 84 percent agree that being self-employed means they are more satised

in their working lives (66 percent completely or strongly agree) 82 percent agree that the work they do is more meaningful to them, and

87 percent that they have more freedom to do the things they want at work Two-thirds (66 percent) think that working for themselves is important for

being able to live where they would like; 54 percent for working around theirown physical health conditions; and 37 percent for being able to care forolder relatives

Over three quarters (79 percent) look for freedom and exibility most in theirpersonal work; half (54 percent) for the chance to use their talents to the full;and 44 percent for meaningful work

In contrast, 21 percent look for high pay, 17 percent for a short workingweek, and 12 percent for security Despite the majority (61 percent) agreeing that the economy is getting better

and the country is heading in the right direction, only 14 percent agree thatthe government adequately supports the self-employed and just 11 percentthat the welfare system is fair to people in their position


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A fertile crisis

The fallout of the great recessionThe UK economy is on the road to recovery. Economic growth rates arereturning to their pre-recession levels, the number of people in employ-ment has reached a record high, and consumer condence is more upbeatthan it was a year ago. Yet this should not disguise the fact that we haveexperienced one of the most seismic crashes and prolonged economicdownturns in living memory topped only by the Great Depression ofthe s.

Our economy remains smaller than it was when the recession beganin , and the destruction wrought by the economic crash continuesto be felt in every corner of the country. Public spending cuts are of amagnitude not seen at any point since the Second World War, with wellover bn to be shaved off government spending. However painful theausterity package appears so far, the cuts enacted to date amount to lessthan half the scal consolidation planned in the coming years.

It is easy to become preoccupied by abstract gures, but there is a veryhuman cost to a shaken economy and shrinking state. Living standardsfor low-middle income households are set to be percent lower in than they were in , and the Institute for Fiscal Studies (IFS) calculatethat between and real wages fell by more than in any other ve-year period. This has helped to create a perverse situation where in-workpoverty now outstrips poverty in workless households.

Nor does it appear that the pain will be over anytime soon. The econ-omy is on the mend, but the recovery is by no means certain. Financialcommentators from both sides of the political spectrum have raisedconcerns that the economic growth witnessed in the last year is built onunsustainable consumer spending, rather than business investment exactly the kind of imbalance that rst precipitated the crisis. There arealso worries that the economy is not creating the type of high-skilled jobs

necessary to win back higher standards of living.

. See for example, Deloittes Consumer Tracker: www.deloitte.com/view/en_GB/uk/news/news-releases/ ffa VgnVCM f aRCRD.htm

. Emmerson, C., Johnson, P. and Miller, H. ( ) IFS Green Budget . London: IFS.

. Ibid.

. Resolution Foundation ( ) The nal report on the Commission on Living Standards .London: RF.

. Institute for Fiscal Studies ( ) Workers keep their jobs but one third faced nominalwage freezes or cuts . London: IFS.

. Joseph Rowntree Foundation ( ) Monitoring Poverty and Social Exclusion .London: JRF.

. Office for Budget Responsibility ( )Economic and scal outlook . London: OBR.
http://www.deloitte.com/view/en_GB/uk/news/news-releases/0391571ffa275410VgnVCM1000003256f70aRCRD.htmhttp://www.deloitte.com/view/en_GB/uk/news/news-releases/0391571ffa275410VgnVCM1000003256f70aRCRD.htmhttp://www.deloitte.com/view/en_GB/uk/news/news-releases/0391571ffa275410VgnVCM1000003256f70aRCRD.htmhttp://www.deloitte.com/view/en_GB/uk/news/news-releases/0391571ffa275410VgnVCM1000003256f70aRCRD.htm


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A fertile crisis

The silver lining to a dark cloud?Amidst the economic doom and gloom, however, there is a transformationoccurring in our economy that may change peoples lives for the better namely the sharp rise in the number of microbusinesses (dened as rmswith zero to nine employees). Today there are , more microbusiness-es in existence than there were when the recession rst began in , and

percent more than at the turn of the century (see Figure ). In contrast,all other business types have experienced static or negative growth. Theimplication is that microbusinesses today make up over percent of allprivate sector businesses and a third of private sector employment.

Figure 2: Increase in the number of businesses by rm size

Source: Business Population Estimates 201013 and BIS SME Statistics 200009

Figure 3: Growth in employment versus self-employment

Source: Labour Force Survey, JulySeptember quarterly data, 20002013 inclusive

80

90

100 I n

d e x

( 2 0 0 0 =

1 0 0 )

110

120

130

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

150

09 1049 50249 250+

90

95

100

105

110

I n d e x

( 2 0 0 0 =

1 0 0 )

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

135

130

125

120

Self employed (main job only) Employees (main job)


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The same story can be seen in the self-employment gures. Accordingto the Labour Force Survey, the number of people working for themselveshas increased by around percent since . This means that close to

percent of the workforce are now self-employed the highest gurein living memory. This trend looks even starker when set against therather modest increase in typical employment (see Figure ). Indeed,

self-employment accounted for percent of the new jobs added sincethe economic downturn in . Nor does this trend show any signs ofabating. The number of people who work for themselves increased byover , in the rst quarter of one of the biggest jumps seenin years.

These shifts have led some commentators to speculate that the UK isexperiencing a new wave of creative destruction, as small rms beginto challenge larger incumbents. Some economists have argued that theeconomy is moving from a Schumpeter Mark II regime, where productionis centralised in a handful of rms, to a Schumpeter Mark I regime, whereproduction is distributed and small rms are the main engine of economicgrowth and innovation. More recently, the social theorist Moises Naimhas suggested that the power of large rms is being challenged evermore bysmall rebrands. Witness the multinational rm Kodak being pushed intobankruptcy in the same year as the -month old Instagram sells for $ bn.

Embracing the zeitgeist Just as the number of microbusinesses has grown, so too has the enthusi-asm for them in broader popular culture. Only a few decades ago runningyour own business was a relatively obscure form of work that many saw asa last resort. Yet fast forward to the present day and it is more likely to beassociated with creativity, innovation and risk-taking endeavours (whetheror not that is true for everyone involved). Indeed, this is the new zeitgeist.Magazines like Inc. and television shows such as Dragons Den are partof a multi-million pound industry that has grown in response to peoplesheightened interest in all things entrepreneurial. Nearly every universitynow has a scheme to help their students start-up in business, and it isincreasingly common for larger organisations to talk of stimulatingintrapreneurship among their employees.

Microbusinesses and the self-employed have also found themselvesin the political spotlight. David Cameron very recently described smallbusinesses as the lifeblood of our economy, and promised early on in

his tenure to take on the enemies of enterprise. Likewise, Ed Milibandrecently pledged to go into the next election as the party of small businessand enterprise. Conversely, he has made tackling predatory capitalismamong big business a major plank of Labours One Nation policy agenda.Nor are these sentiments limited to the UK. In his State of the Unionaddress, Obama used the terms small business and enterprise times

. See, for example, Thurik, R. ( ) Entrepreneurship and unemployment in the UK inScottish Journal of Political Economy , Vol ( ).

. Naim, M. ( )The End of Power: From boardrooms to battleelds and churches tostates: Why being in charge isnt what it used to be. Basic Books.

. See www.bbc.co.uk/news/business-

. Sparrow, A. ( )Ed Miliband depicts Labour as champion of small businesses [article] The Guardian, December .
http://www.bbc.co.uk/news/business-25909235http://www.bbc.co.uk/news/business-25909235


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A fertile crisis

his recent predecessors on average mentioned them just twice. The EUhas also become an evangelist, seeing self-employment as a way to tacklestubbornly high levels of youth unemployment across the continent.

The UK government has matched its rhetoric with several practicalmeasures to help more people start and grow their own business. Thisincludes initiatives such as Business is Great, a campaign to encour-

age people to think about working for themselves; StartUp Loans,a programme that has to date channelled over m in low interestloans to more than , edgling businesses; and the New EnterpriseAllowance, which provides loans and mentor support specically to helpthe unemployed start their own business. On the other side of the politicalspectrum, Labour has supported Small Business Saturday, a movementto promote the products and services of smaller traders, and has alsomooted that it would like to create a Small Business Administrationsimilar to that seen in the US.

Honing in on self-employmentIt is clear then that microbusinesses (and the people who run them) arebecoming a powerful force to be reckoned with. Yet there is still much thatwe do not know about them. What types of microbusinesses exist? Whathas caused the large increase in recent years? What effect are they havingon the economy and wider society? And, perhaps most importantly, howcan we enable them to achieve their full potential? In a bid to answer thesequestions, the RSA and Etsy have launched a new research project, ThePower of Small, which seeks to better understand this growing communityand what it means for all of us.

Future phases of the project will consider the broader macroeconomicimplications of this phenomenon, such as what it means for jobs growth,innovation and productivity. However, this report the rst of three willfocus in particular on the individuals involved, including why so manypeople are turning to self-employment and what this means for them ona personal level. Much has been written recently about the rise in self-employment, and it is clear that there are just as many sceptics as there areadvocates. For the latter, this trend is proof of a resurgent entrepreneurialspirit in the UK, and as such should not only be welcomed but activelypromoted. For the former, however, the fact that so many people areturning to self-employment is merely a symptom of a stagnating labourmarket and a deeper malaise in the UK economy.

The heated debate taking place between these two sides is not anacademic or abstract one. It matters considerably because the outcomedetermines whether or not we believe the rise of self-employment tobe a good thing, and therefore what our policy response to it shouldbe. Should we be enabling more people to work for themselves, or is itbetter to discourage it? The answer will have profound implications forthe one in seven of the workforce who now count themselves as self-employed, as well as for younger generations considering their futureemployment trajectories.

. Ransom, D. ( )How small business and entrepreneur fare in the state of the union

addresses [article] Entrepreneur, January .. For more information see www.gov.uk/government/policies/making-it-easier-to-set-up-

and-grow-a-business--
https://www.gov.uk/government/policies/making-it-easier-to-set-up-and-grow-a-business--6https://www.gov.uk/government/policies/making-it-easier-to-set-up-and-grow-a-business--6https://www.gov.uk/government/policies/making-it-easier-to-set-up-and-grow-a-business--6https://www.gov.uk/government/policies/making-it-easier-to-set-up-and-grow-a-business--6


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Despite the gravity of the issue, however, at present the argumentsmade by both proponents and challengers still appear to be based largelyon hunches or educated guesses. The starting point for this report is tocut through the rhetoric and offer a much clearer account of why thiscommunity is growing and what it really means for those involved. It isfor this reason that we have drawn upon a variety of research techniques

to aid us in this project, from a major survey of over , self-employedpeople, to in-depth qualitative interviews, to a detailed and highly originalsegmentation exercise (see Box for more detail).

We begin the next chapter by setting out the most important trends inthe who, what and when of self-employment and microbusiness growth.

Box 2: Denitions of microbusinesses and the self-employed

Microbusinesses are classed as rms with zero to nine employees, and are asubcategory of the SMEs group, which spans rms with 0249 employees.The Business Population Estimates, which is the best source of information

on this community, pools information from several sources to calculate theirnumber. The process is complex, but the important point is that they seekto account for businesses of all sizes, including those where people haventregistered with HMRC for VAT or PAYE.

The denition of self-employment is more contested and open to debate,in part because no legal denition exists. HMRC have formed a set of workingbehaviours, which should help to indicate when someone is self-employed,for example that they can decide how, when and where they work. The LabourForce Survey primarily leaves it up to the respondent, who can decide whetherthey fall into a number of subcategories that come under the banner of self-employment. This includes running a business, doing freelance work andworking for yourself (respondents can choose more than one option).

We are somewhat constrained by such methods when analysing the self-employed, but for the purposes of this project (and our survey and intervieweesampling) we have broadly dened them as individuals who spend a signicantamount of time working for themselves, and who generate a meaningful amountof revenue through their business activities. A caveat to note is that our primaryresearch has excluded the self-employed that run rms with more than nineemployees even if it is a very small minority in the whole community but theexisting government datasets we draw on may not have done.


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A fertile crisis

Box 3: Research methodology

The Power of Small project has purposefully drawn on both quantitative andqualitative research to paint as detailed a picture as possible of microbusi-nesses and the self-employed community. We began with a review of existingliterature in this eld (including academic papers, government reports andstudies by other research organisations) and a mining exercise of available

datasets (including that of the Labour Force Survey, Business PopulationEstimates and the Family Resources Survey). We avoided datasets that wereless reliable, such as that from Companies House.

This was followed by a series of semi-structured interviews with over 50expert stakeholders and microbusiness owners (see Box 2 for denitions). Thelatter were identied with the help of several partners (including PRIME andEnterprise Rockers), and were chosen in such a way as to ensure we heardthe views of people from a wide variety of backgrounds from a plumber inYorkshire, to a social enterprise consultant in London, to someone running clubnights in Bristol. The interviews with the self-employed were vital for sheddinglight on messy questions with no simple answer such as why people chooseto start-up in business as well for highlighting the unknown unknowns. That

is, issues which we were not aware of at the outset of the project.We also commissioned Populus to interview a random sample of 1,006microbusiness owners, which took place between the 26 February and the 12March 2014. Interviews were conducted across a variety of different businesssectors and Populus only surveyed senior individuals who were responsiblefor leading the business. In keeping with our aim to hear from individuals froma variety of backgrounds, our survey sample was formed of respondents fromboth the business and the consumer panel. The implication is that we did notexclude people who hadnt necessarily put themselves forward as businessowners when rst approached by Populus to take part in their surveys. Thatsaid, there will always be limitations with any survey, for instance the ability ofmigrants with language difculties to complete a questionnaire.

The survey was also used to generate a segmentation of the self-employed.This was formed based on answers to a large number of dual statement ques-tions, whereby respondents have to choose the extent to which they agree withtwo opposing answers. For example, we asked respondents the extent to whichthey primarily serve a local market versus an international one, and whethersurvival or growth is the key priority.

In addition to the above, the RSA is working with Etsy to undertake a majorsurvey of their UK sellers. This survey is still ongoing, but we reveal somepreliminary ndings within this report. The full results will be published in thesummer of 2014.

For more detail on the methodology please contact the author [email protected]


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A booming community

The UK business landscape is changing. In the early s there wereapproximately , rms in existence, but today the gure is closerto million. Instead of a Department of Trade and Industry, there isnow one for Business, Innovation and Skills. And whereas trade unionmembership for industrial workers numbered . million in , thegure is now less than half that. Shifts such as these are in large part dueto the rise of microbusinesses and self-employment. But what types ofmicrobusinesses are growing the most, where are they springing up, andwho is starting them?

Trend #1 The rise of the one-person businessThe rst trend to highlight is that one-person businesses are growing rap-idly while two-person businesses are shrinking in number. Figure belowshows that the number of businesses with zero employees (ie just runby the owners) has increased by close to percent since the turn of thecentury. In contrast, the number of rms with one employee (in additionto the owner) has fallen by percent. To put this another way, virtuallyall the growth ( percent) of microbusinesses in the last years has beendown to the rise of non-employing rms. In fact, one government studyfound that only around three percent of non-employers in increasedemployment over the ve year period to .

Figure 4: Increase in the number of microbusinesses by rm size

Source: Business Population Estimates 201013 and BIS SME Statistics 200009

. Lord Young ( )Growing Your Business: A report on growing microbusinesses .

London: BIS.. Department for Business, Innovation and Skills ( ) Understanding Growth in

Microbusinesses . London: BIS.

80

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110120

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NoneNumber of employees: 1 24 59


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A booming community

This is partly about individual rms not growing in size, but it is alsoabout rms shrinking. Signs indicate that many employing rms mayhave shed staff and moved into the category of a non-employer during theperiod of the economic downturn. Since the crash in there has been amarked decrease in the number of two-person businesses, and a small butnoticeable acceleration in the growth of one-person businesses. According

to analysis by the Department for Business, Innovation and Skills, overa quarter of one-person businesses in had at some point in the pastemployed staff within that business.

Trend #2 The proliferation of part-time self-employmentThe second trend worth observing is the rise in the number of people inpart-time self-employment. Figure illustrates that the amount of peoplewho work for themselves but for less than hours a week has grownby almost percent since , compared to a percent growth in thenumber of full-time self-employed. Nanobusinesses of this kind accountfor close to half the rise in self-employment since the turn of the century,and over percent of that since the economic crash. The result is thataround a third of the self-employed community can now be classed aspart-time (around the same proportion as that of employed workers).This, combined with the growth in the number of one-person businesses,indicates that some of the most signicant changes in the UKs commer-cial composition are occurring at the smaller end of the small businessspectrum (although see Box for an important caveat).

A small but growing number of these people appear to be runningtheir part-time business alongside paid employment. Data from theLabour Force Survey shows that the number of people who work forthemselves in addition to being a conventional employee has increasedby percent since . The same trend has also been highlighted inother surveys. Recent polling by Populus and RBS found that one in veadults use their spare time to earn extra income, while our own surveyof sellers on Etsy an ecommerce marketplace for craft makers foundthat percent work in a full-time job in addition to managing theircreative business. The Labour Force Survey data also shows there has

. Ibid.

. RBS Group ( )RBS Enterprise Tracker, in association with Unltd .

Box 4: The barbellisation of industries

Much of the data suggests that microbusinesses are the only type of rm thatis becoming more prevalent in our economy. Perhaps more accurate, however,is that we are seeing what McKinsey has called barbell-like transformationsin many industries, with very small rmsand extremely large ones capturing agreater proportion of output and turnover at the expense of medium-sized ones.A closer look at government data not from the Business Population Estimatesbut the Inter-Departmental Business Register shows that the two businesstypes with the fastest growing populations are those with 04 employees and1,000 plus employees. An interesting example is the brewery industry, wherevery large rms are buying out their modest counterparts at the same time assmall craft producers boom in number.


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been a marginal increase in the number of people who are primarily self-employed but who also work as an employee on the side.

Figure 5: Growth in full-time and part-time self-employment


Trend #3 The growing importance of self-employmentoutside LondonAnother striking feature of the growth in microbusinesses and self-employment relates to its geographic spread. At rst sight, the regionaldistribution of the increase in the last few years appears to mirror thenorth-south economic divide of the UK. In both London and the SouthEast there has been a jump of around , microbusinesses since

, whereas the North East has only seen an increase of , . Yetcut the data by the percentage growth rate rather than absolute growthrate and the picture ips. The North East has experienced a percentrise in the number of microbusinesses since , whereas London andthe South East have growth rates of closer to percent. In fact, the fourfastest growing microbusiness populations are all to be found in the north(North East, Yorkshire & Humber, North West and Scotland).

A similar story is borne out in the self-employment gures. WhileLondon and the South East have experienced the biggest jumps inself-employment since , the increases in some other regions haveaccounted for a larger proportion of their overall changes in employment(see Figure ). For example, percent of the increase in employment inthe North West since the turn of the century is accounted for by a rise inself-employment, while the gure is percent in the South West. In theWest Midlands, conventional employment actually fell and was only justoffset by a rise in the number of people working for themselves. In everysingle region, no less than one in ve of the extra jobs added since canbe traced back to self-employment.

90

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

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Full-time self-employment Part-time self-employment


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A booming community

Figure 6: Self-employment growth as a proportion of allemployment changes (20002013)


Trend #4 The emergence of new types of business ownersFor many years the popular image of a business owner has usually beenthat of a middle-aged man. Yet this stereotype is being chipped away asseveral other demographic groups become more prominent. One of themost marked trends of recent years has been the increase in the numberof women who are self-employed. As Figure shows, over percent morewomen have become self-employed since the turn of the century, which isalmost twice the growth rate witnessed among men. Indeed, women ac-count for around percent of the increase in self-employment since theeconomic downturn in . Although half of women in self-employmentwork part-time, this proportion has not changed markedly since .In fact, the most signicant increases in part-time self-employment have

been among men.Self-employment is also becoming more commonplace among the

over 55s , . m of whom are now self-employed. Figure shows that thenumber of people aged in business has increased by around percent since , while the number of year-olds who are workingfor themselves has increased by percent. These trends have continuedthroughout the recession, meaning that over half the increase in self-em-ployment since can be accounted for by the over s. Other surveysalso show a similar pattern. The Global Entrepreneurship Monitor, forexample, nds that the number of over s in the process of starting abusiness has doubled since .

. Levie, J. and Hart, M. (Forthcoming) GEM UK ndings.

-100 0 100 200 300 400 500

Total change in number of workers (thousands)

Self-employment increase 20002013 Employment increase 20002013

Northern Ireland

Scotland

Wales

North West

West Midlands

South West

South East

London (combined)

East Anglia

East Midlands

Yorkshire

North East

23%

26%

33%

92%

100%

62%

72%

35%

27%

29%

25%

46%


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Figure 7: Growth in self-employment by gender


Figure 8: Growth in self-employment by age group


Self-employment is also growing among young people . Despite arecent dip, the number of under s starting up in business has increased

by close to percent since the turn of the century (see Figure ). Thisgure is even more striking when you consider that the number of youngpeople in typical employment has fallen over the same period (it hasrisen or remained more or less static for nearly every other age group). Inother words, self-employment has become more important as a source ofemployment for this demographic. Unlike women and the over s, wecannot say that the under s account for a major share of the increasein self-employment the fact that many are in education means theywill never account for a large proportion of this community but theirgrowing preference for self-employment could be seen as a sign of whatthe workforce of the future will look like.

Taken together, these ndings suggest that the microbusiness and self-employed communities are undergoing a steady but notable change. The

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1624 2534 3544 4554 5564 65+


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A booming community

number of such rms is growing substantially, yet the real changes appearto be happening at the small end of small, with the part-time self-employedaccounting for much of the business activity witnessed in recent years.There are also signs that certain demographic groups are increasinglyturning to self-employment most notably women, the over s and youngpeople and in doing so are disrupting entrenched stereotypes. Moreover,

there is a sense that self-employment is becoming a much more importantsource of work for those living in the regions outside of London.This begs the question of what has caused such shifts, and indeed

whether this phenomenon is part of a long-term recalibration of oureconomy or simply a cyclical blip. Before exploring in more detail theorigins of boom, the next chapter examines three myths in particularregarding the newly self-employed.

. For more information see www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance- _entrepreneur_aag- -en

Box 5: Is the trend happening elsewhere?

The OECDs data suggests that we are alone in experiencing such a large

increase in self-employment. Between 2007 and 2012, the UK saw thelargest percentage increase in the number of self-employed jobs, ahead ofFrance, Germany, Canada and the US (although it is only the latter that saw adecrease). 19 What explains this divergence is not as yet clear, though there arelikely to be particular social and economic drivers of self-employment in the UKthat are not present elsewhere. This ranges from our high rate of immigrationto the tax and deregulatory measures taken by the government to ease theprocess of doing business (we explore these drivers in more detail below).

Box 6: Summary of microbusiness and self-employment

changesData from the Labour Force Survey and Business Population Estimates pointto several interesting trends:

The number of microbusinesses has grown by 40 percent since 2000,equating to an extra 1.4m rms

Microbusinesses now account for 95 percent of all private sectorbusinesses and a third of all private sector employment

Self-employment accounted for 90 percent of the new jobs added since theeconomic downturn in 2008

95 percent of the growth in microbusinesses since the turn of the centuryis owed to an increase in one-person businesses, not employing rms

The number of people in part-time self-employment has grown byclose to 65 percent since 2000, compared to 20 percent in full-timeself-employment

An increase in self-employment accounted for 92 percent of jobs growth inthe North West and 62 percent in the South West, compared to 35 percentin London

The number of women in self-employment has grown at almost twice therate of men since 2000

Over the same period the number of over 65s running their own businesshas increased by 140 percent, and the number of under 25s working forthemselves has increased by 55 percent.
http://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-2013_entrepreneur_aag-2013-enhttp://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-2013_entrepreneur_aag-2013-enhttp://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-2013_entrepreneur_aag-2013-enhttp://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-2013_entrepreneur_aag-2013-enhttp://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-2013_entrepreneur_aag-2013-en


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Busting somecommon myths

Rebalancing the debateFew dispute the fact that the microbusiness community is growing andthat self-employment is on the rise. However, there is considerabledisagreement in what lies behind the boom and whether it will continueinto the future. The more pessimistic commentators have argued thatthis phenomenon is indicative of a troubled economy, and that we wouldbe better off with fewer people working for themselves. Yet criticismssuch as these are too often based on assumptions that do not stand upto scrutiny.

Here we highlight three myths in particular that deserve closer attention:

Myth #1 Most of the newly self-employed have beenforced into itOne of the main drivers behind the increase in self-employment in recentyears is said to be a lack of jobs elsewhere. The argument runs that whenpeople cannot nd work in a typical business they have to create theirown in order to make ends meet. Headlines in the national press such asYoung jobless fuel growth in UK start-ups and Self-employment hits

year-high as people try to avoid unemployment are indicative of howwidespread this point of view is. Indeed, it is often taken as a given thatrates of unemployment and self-employment are strongly and positivelycorrelated if one goes up, the other must follow.

There is, of course, some truth in this. A number of studies have founda strong link between the level of unemployment in local areas and therate of new start-ups. It is also true that self-employment accounts foran unprecedented proportion of the new jobs added since the economic

crash. Yet in the UK at least, measurements of entrepreneurial motiva-tions show that the number of people starting up out of no choice oftheir own continue to be in the minority. The latest results from theGlobal Entrepreneurship Monitor indicate that the level of opportunityentrepreneurship where people start up for positive reasons (eg to makethe most of a good idea) is close to ve times higher than the level ofnecessity entrepreneurship where people start up for negative reasons

. Available: www.ft.com/cms/s/ /f ef ec-c - e - ac - feab de.html#axzz eGKDrDE and www.telegraph.co.uk/news/uknews/ /Self-employment-

hits- -year-high-as-people-try-to-avoid-unemployment-ONS-says.html. See for example Fairlie, R. ( )Entrepreneurship, Economic conditions and the Great

Recession [Discussion paper]
http://www.ft.com/cms/s/0/f22ef8ec-c473-11e2-9ac0-00144feab7de.html#axzz32eGKDrDEhttp://www.ft.com/cms/s/0/f22ef8ec-c473-11e2-9ac0-00144feab7de.html#axzz32eGKDrDEhttp://www.telegraph.co.uk/news/uknews/9344366/Self-employment-hits-20-year-high-as-people-try-to-avoid-unemployment-ONS-says.htmlhttp://www.telegraph.co.uk/news/uknews/9344366/Self-employment-hits-20-year-high-as-people-try-to-avoid-unemployment-ONS-says.htmlhttp://www.telegraph.co.uk/news/uknews/9344366/Self-employment-hits-20-year-high-as-people-try-to-avoid-unemployment-ONS-says.htmlhttp://www.telegraph.co.uk/news/uknews/9344366/Self-employment-hits-20-year-high-as-people-try-to-avoid-unemployment-ONS-says.htmlhttp://www.ft.com/cms/s/0/f22ef8ec-c473-11e2-9ac0-00144feab7de.html#axzz32eGKDrDEhttp://www.ft.com/cms/s/0/f22ef8ec-c473-11e2-9ac0-00144feab7de.html#axzz32eGKDrDE


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Busting some common myths

(eg because they had no other options for work). Interestingly, both types of entrepreneurship grew during the economic downturn.

What is more, our own RSA/Populus survey found that just percentof the self-employed said escaping unemployment was a key reason forstarting up. As Figure shows, a much more common answer was toachieve greater freedom or to make the most of a good idea. Those who

started up in business within the last ve years in other words, duringthe recession are only slightly more likely to have said they started upin response to a lack of jobs ( percent of respondents). Echoing theseresults are those of a survey from the Resolution Foundation, which foundthat only percent of the newly self-employed those who started upwithin the last ve years would prefer to be typical employees. Basedon analysis of government data, they calculate that the rise in the numberof unemployed people moving into self-employment accounts for just aquarter ( percent) of the overall growth in self-employment since thedownturn a signicant minority but a minority nonetheless.

Figure 9: What were the main reasons for you deciding to lead yourown business?

Source: RSA/Populus survey of microbusiness owners (26 February 12 March 2014)

Myth #2 Most of the newly self-employed are odd-jobbersAs well as examining the motivations of the newly self-employed, somehave questioned whether the types of businesses they run are of a seriousnature. Both the TUC and CIPD, for example, have suggested previouslythat a large number of the newly self-employed are odd-jobbers who arescratching around for work (although the CIPD has since taken a morepositive stance on self-employment). Others have argued that most

. Levie, J. and Hart, M. (Forthcoming) Op cit.

. DArcy, C. and Gardiner, L. ( ) Just the job or a working compromise? London:

Resolution Foundation.. See for example Trades Union Congress ( ) More than two in ve new jobs created

since mid- have been self-employed .

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of the increase in self-employment in recent years lies in a handful of low-skilled occupations, including administration, cleaning and construction.Claims such as these are partly corroborated by the large rise in part-timeself-employment since the turn of the century.

Again, however, this is only one part of the story. Data from theLabour Force Survey actually shows that the biggest increase in self-

employment since has been in professional occupations one of thehighest skilled labour groups (see Figure ). And while the number ofself-employed people in other highly skilled groups has remained staticor decreased marginally, this broadly mirrors the changes occurring in thewider workforce. It is true that there are clear jumps in self-employmentin sales, factory and elementary occupations some of the lowest skilledpositions. But if the growth in self-employment was in fact largely downto more odd jobbers, it is reasonable to expect the increases in thesegroups to be much larger than indicated in the graph below.

In reality, the growth in self-employment since the recession has beena story of two trends. The latest data from the Labour Force Surveyshows the increase in the rst half of the economic downturn from to was virtually all accounted for by part-time self-employment,whereas the rise in the second half of the economic downturn from to was largely accounted for by full-time self-employment. Thismay indicate that the businesses of the newly self-employed are becomingmore serious, or that more serious workers are beginning to move intoself-employment. In any case, it is unwise to assume that the part-timeself-employed are running businesses with less conviction than theirfull-time counterparts. Similarly, the fact that many of the newly self-employed say they work for themselves or freelance rather than run abusiness should not be taken as a sign that they are lower skilled or runrms generating lower quality products or services.

Figure 10: Change in self-employment and employment byoccupation (200813)


P e r c e n

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Employment Self-employment

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Busting some common myths

Myth #3 The growth in self-employment is a cyclical blipThe number of microbusinesses has grown by over half a million sincethe economic downturn began, and the proportion of the workforce thatis self-employed is at highest ever level. Myths and have led manyto believe that these changes are likely to be short-lived, and that whenthe economy gets back on its feet things will return to normal. Yet this

overlooks the fact that self-employment and the number of microbusi-nesses had been increasing long before the recession started. The numberof microbusinesses in the UK has increased by an average of . percenta year since the start of this century, and the numbers in self-employmentby an average of two percent. It is also telling that the self-employedpopulation is now growing at a very fast rate despite the fact that theeconomy is on the mend.

At an individual level, some studies also show that the likelihood ofa business owner returning to typical employment is low. Our RSA/Populus survey found that only nine percent of the self-employed plan toclose their business in the next three to ve years, and the gure is onlymarginally higher for those who started to escape unemployment (seeFigure ). Surprisingly, this latter group are even more likely to want togrow their business in the near future. Moreover, we know that peoplewho fold a business often go on to start a new one, even if they closed asa result of nancial distress. A study by Kingston Business Schoolfound that around percent of small business owners who closed theirventure went on to launch another.

Figure 11: What do you plan to do with your business over the next35 years?

Source: RSA/Populus survey of microbusiness owners (26 February 12 March 2014)

. See for example, Dawson, C., Henley, A. and Latreille, P. ( ) Why do individuals

choose self-employment? [Discussion paper].. Stokes, D. and Blackburn, R. ( ) Opening up business closures: A study of businesses

that close and owners exit routes . London: Kingston University.

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O ver al l St ar ted to escape unemployment

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These ndings indicate that the growth in the UKs self-employedcommunity has been propelled as much by structural shifts as cyclicaluctuations. But what are these long-term trends exactly? And how muchare to do with changes in the economy and how much to do with trans-formations in our society and culture? The next chapter spells out veingredients that may lie behind the boom.

27282930

. Elliott, J. ( )The Great Payroll Scandal. London: UCATT.

. DArcy, C. and Gardiner, L. ( ) Op cit.

. Ibid.

. Barnes, H. ( )Work advisers pushing jobless into self-employment [Article] BBCNews, February .

Box 7: How much of a problem is bogus self-employment?

Loopholes in the tax system have always been used by unscrupulousorganisations to push their staff into declaring that they work for themselves.Arrangements like these mean the employer no longer has to pay NationalInsurance contributions and can sack their pseudo-employees more easily.This was a notorious problem in the construction industry during the early2000s, and prompted the government to introduce new measures to limitthe use of such tactics. The construction union UCATT believes the problemcontinues to this day, with an annual cost of around 2bn to HMRC in losttax revenues. 27 However, there are no concrete gures indicating that this is awidespread problem. What we do know is that the number of people describ-ing themselves as sub-contractors has actually fallen slightly since 2005. 28 Sotoo has the number of self-employed individuals working in construction. 29

Concerns have also been raised that recent changes to the welfare systemare fuelling a rise in bogus self-employment. The introduction of the new WorkProgramme, where non-state organisations are paid to help the long-term un-employed into work, is thought to have created a perverse incentive for provid-ers to push clients into starting their own business, even if they are unpreparedand ill-suited to this line of work. A BBC investigation found several instanceswhere people had been inappropriately encouraged to start-up in business,with some being misinformed by their advisors that they would receive higherbenets on Working Tax Credits than on Job Seekers Allowance. 30 Again, it is

unclear how endemic this problem is. The Labour Force Survey does show thatthe proportion of people on Working Tax Credits who are self-employed hasincreased marginally, but there is little substantial evidence beyond this of WorkProgramme providers pushing their clients into self-employment.


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Five ingredients behind the boom

Five ingredientsbehind the boom

What follows is a breakdown of ve key ingredients that may help toexplain the boom in self-employment yet which are often overlooked inmainstream debates. These relate to long-term shifts in both the economyand wider society, as well as to changes at the micro and macro levels(see Figure ).

Figure 12: The 5 ingredients behind the boom

New organisationsThe rst ingredient relates to the way in which organisations arechanging. As highlighted in the last chapter, a lack of employment oppor-

tunities is one reason why more people are turning to self-employment.Yet it is not just a lack of jobs that is a driving force; it is also a lackof good jobs worthwhile ones that can help people sustain the livingstandards to which they have become accustomed. Labour economistshave highlighted that mid-level opportunities are being stripped out oftodays organisations at a remarkable pace, leaving greater numbers ofpeople with the prospect of working either in lovely or lousy jobs, whichsit at polar opposites of the jobs market. Middle-wage occupations sawtheir share of employment decline in major European nations from

to .

. Cowen, T. ( )Average is Over: Powering America Beyond the Age of the GreatStagnation. Dutton.

New mindsets New population

New organisations New markets

New technology

Society

Economy

MacroMicro


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This is partly due to the advent of computerisation and the spread ofautomation once limited to certain occupations but now extending intoeverything from accountancy to legal services. One Oxford Universitystudy indicates that as many as percent of jobs are at risk of beingautomated over the next years. The effect of the recession has beento accelerate this trend and reveal long-term structural problems that

remained unseen in the good years. Indeed, the economists Jaimovichand Siu argue that the middle class jobs lost in the economic downturnare unlikely to return. What we may be seeing then is that rather thansettle for a lower-skilled position, many people are instead opting to workfor themselves. One interesting study of unemployed workers found thatvery few were willing to take conventional jobs paying less than theirprevious salary.

Just as many of the unemployed are disillusioned with the quality ofjob opportunities that are available to them, so too are those who arecurrently within work. Economic and technological forces have not onlydestroyed middle-skilled jobs, they have also eroded many of the benetsin the roles that remain. According to the Institute for Fiscal Studies,between and real wages fell by more than in any comparableve year period. Other pillars of the workplace are also crumbling:benets appear to be atrophying, pensions becoming less generous andworkloads increasing. From architecture to teaching to academia, onceprestigious occupations no longer promise the same level of rewards theyused to or years ago. The result is that working for yourself hasbecome that much more attractive (even if life for the self-employed isnancially difficult). As some of our interviewees put it:

Before I set the business up, I was working in full time employment. I wasworking long hours, but not getting much money. I just thought to myself,why not work this hard but in my own business?

When I was rst working everything was great. There was team spirit.We had a lot of benets. It wasnt cut throat at all. And they seemedto care about the employee. But because of the recession, the care foremployees has gone.

The idea of a job for life has just gone. I think people perceive a typicaljob as being less secure, and when they make the comparison they realise

that self-employment may be a better option for them.

Yet the attractiveness of typical jobs is waning just as much for non-material reasons as it is material ones. The anthropologist David Graeberreceived attention last year for his essay on bullshit jobs, which took

. Frey, C. B. and Osborne, M. and A. ( ) The Future of Employment: How susceptibleare jobs to computerisation? University of Oxford.

. Cited in Cowen, T. ( ) Op cit.

. Krueger, A. B. and Mueller, A. ( ) Job search and job nding in a period of massunemployment: Evidence from high-frequency longitudinal data. [Working paper] cited inCowen, T. ( ) Op cit.

. Institute for Fiscal Studies ( ) Op cit.

. See for example Neville, S. ( )The fractured middle: Gulfs grow within, andbetween, professions [article] Financial Times, February .


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issue with the growing number of employment opportunities that seemto lack purpose, and which exist for no ostensible reason. Survey aftersurvey continues to show that barely a third of employees in the UK feelengaged at work. Many of the self-employed people we spoke withechoed these sentiments, saying they had felt increasingly underwhelmedby the corporate culture of their old workplace:

Ive noticed more people than ever are moaning about their jobs. Peopleare talking about what they want from life. Theyre starting to realisetheres more to life than the .

I feel like now, were living in a time where people will be working untilthey drop. So you might as well enjoy what youre doing.

The impression here is that a lot of people are being pushed intoself-employment partly because of a lack of decent job opportunities andpartly because those jobs that do remain are becoming less attractive.Yet this is only one part of the story. Rather than forcing people intoself-employment, many of these organisational shifts should instead beseen as the trigger that is releasing pent up entrepreneurial ambitions. Inother words, they may be encouraging people to start up the business theyhad always been meaning to. As one of our interviewees put it:

For me theres a bit of a silver lining having to leave the job becauseyou wouldnt have had the guts to leave a good job for the unknown.But having done so it can be nice.

New mindsets Just as organisations are changing, so too are mindsets. For much ofpost-war Britain, running your own business was seen as a lesser form ofwork, particularly when compared to job opportunities in professionssuch as medicine, law and the civil service. In recent years, however, thisstigma has begun to fade away. Business owners are now seen as pioneers,just as they were in the th and th centuries when the likes of RichardArkwright were leading the industrial revolution. According to the GlobalEntrepreneurship Monitor, close to percent of people now believe thatthose starting a successful business have a high level of respect in society

a gure that has risen steadily over the past decade. However, this is not simply a case of more people passively admiring

the self-employed, it is also about more people themselves enjoying thevery acts of making, doing and selling. Conspicuous consumption isbeing challenged by conspicuous production, as starting and running abusiness becomes a deeply social and popular activity not just a way toearn money but to express oneself and connect with others. Many of ourinterviewees, for instance, spoke of wanting to create their own brand,

. Graeber, D. ( ) On the Phenomenon of Bullshit Jobs in Strike! Magazine ,Autumn .

. See for example Rayton. B. ( )Employee Engagement Taskforce: Nailing theevidence workgroup . Engage for Success.

. Levie, J. and Hart, M. (Forthcoming) Op cit.


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while others described how their decision to start up in business wasvalidated by the respect they received from those around them. Writing inThe New York Times , William Derisevich sums up the popular mood:

Todays ideal social form is not the commune or the movement or eventhe individual creator as such; its the small business. Every artistic or

moral aspiration music, food, good works, what have you is expressedin those terms. The small business is the idealized social form of our time.Our culture hero is not the artist or reformer, not the saint or scientist, butthe entrepreneur.

The origins of this shift in popular culture are still open to question.However, it is likely that efforts by the government and advocacy groupsto promote self-employment as a viable path in life have made at leastsome impression on people. Indeed, there seems to have been a consciouspolitical decision by this government in particular and by many of the de-volved governments to champion self-employment. The Business in Youcampaign, the StartUp Loans scheme and the New Enterprise Allowanceinitiative are just a handful of the new projects set up by the state inrecent years. Added to these are independent programmes like GlobalEntrepreneurship Week, which now promotes entrepreneurship across countries. The media, too, has played its part, with shows like DragonsDen and magazines such as Inc. exposing greater numbers of people to theidea of working for themselves even if they do labour the clichs.

These efforts are complementing more fundamental changes insociety particularly those driven by new technologies. The socialtheorist Manuel Castells has written of how the internet and social mediaplatforms have exposed people to a world of new ideas and outlooks,and as a result nurtured among them a craving for autonomy and distrustof authority something he describes as individuation. Similarly, thepolitical scientist Moiss Naim has suggested that the world is undergoingan expectation revolution, whereby increasing access to travel, differentcultures and communication tools are imbuing people with a desire forindependence that cannot be readily satised by old power orders andhierarchical workplaces.

Other commentators have gone further and argued that our veryvalue systems are shifting. One such person is Ronald Inglehart, a politi-cal scientist at the University of Michigan, who has over the course of

several decades been tracking changes in what we value. According to hisresearch, post-materialist values where people prize autonomy andself-expression over economic security and tangible possessions havebecome more widespread. There were approximately four times asmany materialists as post-materialists in the early s, yet by thelatter had taken the lead. This is partly due to increasing connectivity and

. Deresiewicz, W. ( )Generation Sell [article] The New York Times, November .

. Castells, M. ( )Networks of Outrage and Hope: Social movements in the internetage. Polity Press.

. Naim, M. ( ) Op cit.

. Inglehart, R. F. ( ) Changing values among western publics from to inWest European Politics , ( ): .


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cultural exposure, and partly to do with feelings that survival and accessto basic goods can now be taken for granted.

Unsurprisingly, the desire for autonomy and self-expression may havefed into greater numbers of people wanting to work for themselves andbe their own boss. These individuals will in turn add to the weight ofcultural forces making self-employment more acceptable. In a self-fuelling

fashion, the more people we see starting up in business, the more we viewit as a feasible option for us. Indeed, someone with a self-employed parentis approximately two or three times more likely to start their own bus-iness than those without. One study by the Kauffman Foundation in theUS suggests that entrepreneurship may even be contagious.

New marketsAnother factor fuelling the growth of the self-employed community ischanging markets. Forty plus years ago the UK was an economy stillrooted in heavy industry and manufacturing. Yet fast-forward to andthe economy is in an entirely different place. Today we are more likelyto work in a call centre than we are in a car factory, and to be in an officesurrounded by servers and computers than heavy machinery and assemblylines. In , manufacturing accounted for a fth of UK GDP, but nowit is only a tenth. Contrast this with the service sector, which todayaccounts for over three-quarters of UK economic output. One estimatesuggests that almost all recent EU jobs growth has come from services.

The reason this matters is because small businesses thrive in serviceindustries not least due to lower barriers to entry. Rather than have toinvest in heavy capital to create products, microbusinesses can insteaddraw upon talented labour to generate services. And with fewer barriersto entry, new players can continually challenge the status quo, generatinga level of churn that opens up space for new microbusinesses to emerge.As Josef Schumpeter once said, established businesses are standing onground that is crumbling beneath their feet and that ground is becom-ing ever more precarious. Moreover, many of the new service-basedoccupations emerging today can only be hosted in small business units.The app developer and the personal trainer, for instance, operate witha certain level of authorship that requires them to work alone or in asmall team.

Alongside a booming service sector, another trend driving the growthof self-employment and microbusinesses is the emergence of niche

markets namely products and services that cater to very particulartastes. From music to television shows to food, the mainstream stand-ardised offers that once dominated our lives are being challenged by

. Hout, M. and Rosen, H. ( ) Self-employment, family background and race in The Journal of Human Resources , Vol ( ) cited in Blanchower, D. and Shadforth, C. ( )Entrepreneurship in the UK in Foundations and Trends in Entrepreneurship , Vol ( ).

. Kedrosky, P. ( )Getting the Bug: Is (growth) entrepreneurship contagious? KauffmanFoundation.

. Seehttp://data.worldbank.org/indicator/NV.IND.MANF.ZS

. Seehttp://data.worldbank.org/indicator/NV.SRV.TETC.ZS

. Roxburgh, C. and Mischle, J. ( ) European Growth and Renewal: The path fromcrisis to recovery . McKinsey Global Institute cited in Mulgan, G. ( ) The Locust and the

Bee. Princeton University Press.. Schumpeter, J. ( )Capitalism, Socialism and Democracy cited in Wooldridge, A.

( )Global Heroes [Article] The Economist, March .
http://data.worldbank.org/indicator/NV.IND.MANF.ZShttp://data.worldbank.org/indicator/NV.SRV.TETC.ZShttp://data.worldbank.org/indicator/NV.SRV.TETC.ZShttp://data.worldbank.org/indicator/NV.IND.MANF.ZS


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highly personalised alternatives what some have termed the greatunbundling. As one business owner put it, whereas the th century wasabout dozens of markets of millions of consumers, the st century willbe about millions of markets of dozens of consumers.

Technological progress has played a

salvation in a start-up? the origins and nature of the self-employment boom

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