Being self-employed may well be a sign of desperation, not choice

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I drew attention to some new HMRC statistical data yesterday: now it is time to look at some more, just published, this time relating to the number of people with self employed earnings and what they report that they make. The base data, to which I have added the right hand five columns, is as follows (click the image to get enlarged versions):

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The data reveals that just over 5.6 million suggests that they are self employed but that of these the vast majority who make no income as a result have significant other earnings, suggesting that these are hobby businesses at best, and that until self-employed earnings average £5,000 a year they do not, on average, make up more than 50% of the earner’s income. This may come as no great surprise: it is very hard to live on £5,000 a year. But for the purpose of the analysis that follows I will ignore those earning less than £5,000 profit from self-employment as this is unlikely to be their main economic activity.

For those earning £5,000 and above the data is plotted as follows:

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The impression given is, however, a little misleading. The top two bands of income represent just 6.6% of the sample. If they are eliminated the remaining 3,134,000 self employed people have income as follows:

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Those in the bottom four income brackets represent 71% of the people likely to be full time self employed in the UK and all make less than average UK earnings, in total. On self employed earnings alone 85% of the full time self employed make less than median UK earnings.

Three conclusions follow. The first is that there may be systemic under-declaration of income here.

Second, alternatively, self employment is a poor economic option for many people.

Third, in that case its massive increase in recent years is a sign of economic desperation and not of an outbreak of entrepreneurial vigour.

And, for the record, there are 96,000 self employed people (about a quarter of them likely to be GPs) who are doing quite well.