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Self-employed workers deserve respect

Nigel Williams, 24 July 2014

Employment minister Esther McVey told a school audience they should take as much pride in being self-employed as if they had gone to university and been given a job. It’s not unreasonable. Neither is there any credit in sneering at her own law degree. Barristers form a noteworthy category of the self-employed, although they are obliged to have degrees in order to practise. GPs are another such group. Given the respect traditionally accorded both, it seems strange that she should need to question the esteem in which the self-employed are held. Of course, there is a huge range of jobs, as some of her other comments brought home.

The Global Entrepreneurship Monitor is an international survey of attitudes to and experience of self-employment. The employment minister chose to draw attention to this survey because the UK compared well in the ‘necessity-driven entrepreneurship rate’. From 2001 to 2013, it has consistently been between 10% and 20% and below several countries one might choose for comparison.

The GEM research is undertaken for the UK by Aston Business School and the Strathclyde’s Hunter Centre for Entrepreneurship. They present their reports beautifully and even provide a graphical tool for visualising data.

I offer an example, shown below, but recommend trying out a few theories of your own.

This bubble graph shows three measures. The Nascent Entrepreneurship Rate is the proportion of people in the first three months of drawing income from the business. That is shown by the sizes of the symbols. The six countries shown are chosen because they relate to a lot of recent economic news and the comparisons are interesting. The ‘explore data’ link allows you to select others. The biggest bubble in this selection belongs to the United States. The United Kingdom exceeds Germany in most years, but is behind Poland and Greece.

The next stage is ‘New Business Ownership’, which represents businesses paying out from 3 to 42 months. It is shown against the vertical axis. A little reflection suggests that that group should be far larger. If the ‘Nascent Entrepreneurs’ can all pay themselves from day one and all progress to become new business owners and beyond, we might expect thirteen times as many. Each surviving new businessman or woman would spend three months as nascent and thirty-nine as new before entering the final ‘Established Business Ownership’ category. Since the only upper limit is the length of a person’s career, established ownership would be larger still in a world without failure.

In the countries shown, the Established Business Ownership rate is typically around double that for new businesses. Three and a half years as a new business would imply seven years beyond that, but a range of scenarios is possible. The UK’s Nascent Entrepreneurship rate doubled from 2.7% in 2009 to 5.3% in 2012, so some people have not had time to record their full time as new owners. Moreover, nascent businesses cannot always start paying out immediately.

There is one other reported statistic needing to be explored. The ‘Business Closure’ rate looks low. 1.3% in the UK reported closing or leaving their business in 2013. Nearly three times that number were in the process of starting up, yet the number of established business owners grew little. For all countries shown, as the slider for the years moves across the screen, the bubbles grow, shrink and move up and down far more than they travel between left and right. The established business numbers remain more stable. A sensible interpretation is that it takes longer than those three months before the business starts paying, even if most eventually make it. For the given average rate of closures, either it takes over a year to start paying, or less than a third of businesses ulitmately get established.

As an alternative to studying for a degree and being employed by someone else, self-employment is no quick and easy option. Barristers and GPs need to invest immense effort in their qualifications beforehand, but they are atypical as, to some extent, their business then finds itself. Most businesses need the twin skills of producing something and persuading people to pay for it. Without the second component, which is so easy to underestimate, start-ups wait longer for their first dividends or never reach maturity. One reason self-employed workers deserve respect is that it is hard work to make a success of it.

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