The happy band of the self-employed is remaking our economy for the better

 
Paul Ormerod
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The self-employed, like many plumbers, say they are happy not to have conventional jobs

HOW MANY workers does the typical American firm employ? Actually, it is a trick question. The answer is “zero”. More than 50 per cent of all companies in the United States are one-person operations – the owner, and no-one else.

This fragmentation of size is increasingly reflected in the UK. Here, the main growth is in self-employment rather than through one-person companies, but the principle is the same. According to the Office for National Statistics (ONS), in 2014, 4.6m people were self-employed in their main job, accounting for 15 per cent of all those in work, the highest percentage since data were first collected 40 years ago. Total employment in the second quarter of 2014 was 1.1m higher than in the first quarter of 2008, just before the economic downturn. Of this increase, 732,000 were self-employed. So the rise in total employment since 2008 has been predominantly among the self-employed.

It’s good news, of course, and reflects the flexibility of the British labour market. It does, however, seem to come at a cost. The ONS estimates that the average median income of the self-employed has fallen by no less than 22 per cent since 2008, after adjusting for inflation. Ed Miliband and the conventional Left denounce these developments. Proper jobs have not been created, they argue, and people have been forced against their will to take large cuts in pay.

Earlier this year, a major study by the Royal Society of Arts (RSA) exploded this as a myth. Only one in four of those who started up a microbusiness in the recession said that escaping unemployment was a key motivating factor. A much more common answer was to achieve greater freedom. The self-employed are also happier than typical employees. Eighty-four per cent agreed that they were more satisfied in their working lives than they would have been in a conventional job (66 per cent completely or strongly so). The RSA argued that forgoing material benefits for more meaningful returns is a sign of a new “creative compromise” at work.

In fact, basic economic theory suggests that well-being increases when people are offered more flexibility in the trade-off between work and leisure. To caricature the old days, you were offered a 40-hour week, take it or leave it. But being self-employed allows you to choose your own point on the supply curve.

The RSA’s ideas are being taken forward in an exciting way in a new book by Adam Lent, director of its Action and Research Centre. The book, Small is Powerful, is crowdfunded, naturally. Lent argues that not only is the era of big government, big business and big culture over, but that this is unequivocally a Good Thing. Intriguingly, in the wake of the recent by-elections, Lent writes about Zombie Politics, and why big politics continues despite nearly everyone having lost faith in it. He does not really deal with the issue of how, in the internet economy, the small can suddenly become terrifyingly big (witness Google and Facebook). But his book will open a window on how our world is changing.