Taking the leap from the security of having a boss to being your own – self-employment does have some attractions.
However as the numbers of people choosing this over unemployment grow, new research suggests that the grass isn’t always greener on the other side.
According to the latest study by independent think tank Resolution Foundation, the typical self-employed worker earns around 40% less than the typical employee.
For self-employed workers, their median earnings have fallen by 25% in health and social work compared to employees who only saw a 1% drop. The drop is as stark in art, leisure and other services with a fall of 23% for the self-employed compared to 2% for employees.
In the North East the number of jobs has actually fallen by 91,000 since 2008, while the number who are self-employed rose by 23,000. The research has prompted questions over the true picture of the economic recovery.
Gavin Kelly, chief executive of the Resolution Foundation, said: “The growth in self-employment over recent years has been astonishing – but the reasons for it are complex.
"Some of it can be explained by a workforce that is getting older and putting off retirement for longer, some of it may be down to our growing appetite for being our own boss, and clearly much of it is due to weakness in the jobs market meaning there are fewer other options.
"Whatever the cause, self-employment is often a highly precarious existence which isn’t that well supported by public policy. High levels of self-employment seem likely to be here to stay and policy-makers have some catching up to do.”
Changes in median earnings of self-employed and employees, 2006-07 to 2011-12
Real estate, renting and business activities
Wholesale and retail
Transport, storage and communications
Health and social work
In the region, as the number of self-employed grows the research found the numbers of employees have fallen.
Laura Gardiner, co-author of the report, said: “The picture for the UK as a whole masks something going on in the regions. If you look at workers and employees you see that areas like the East and London self-employment has grown as well as the number of employees. In the North East self-employment has grown but over that period employees have decreased. The two trends are going in opposite directions.
“It has dampened down the effect of falling employment numbers.
“It’s not surprising that employee numbers go down in a recession, it’s maybe not surprising that five years after a recession the North East is not back in the position it was before, it is still 18,000 jobs short.
“We did also look at just the period of economic recovery and self-employment has increased every year. We look at if you took away the recession you still see in the North East self-employment growing more than employees.
“It is providing more employment growth in the North East even though it is a small percentage of the workforce it’s been a key way of driving employment recovery particularly in areas like the North and Midlands.”
For those who have chosen self-employment, moving from a employee job in the public or private sector, there are differing views for how manageable the transition is.
Mark Robinson was Executive Director of Arts Council England, North East, until he left in 2010 to work for himself, founding Thinking Practice.
“It’s essentially me most of the time doing consulting in arts and culture, I do a range of things from business development, support, research, evaluation and writing,” said Mark.
“I had worked for the Arts Council for 10 years and had been a freelance before but much earlier in my career to make a living and because I had more experience I thought that I could make a contribution in a different way outside an institution and I wanted a bit more freedom and flexibility.
“Earnings-wise it’s been better than I probably budgeted for four years ago, I thought there would be a bigger drop. One of the attractions of the job I had, they are relatively well paid.
“But earnings-wise I can not complain, I have been as busy as I wanted to be in the last four years and the past two years have been the best.
“It’s been pretty much constant and it’s been interesting work as well. I have probably not paid as much to my pension as I would have if I was with the Arts Council but I have found that the work has come through and earnings have been pretty much what I would have expected in that period, certainly not the 40% drop.
“But I do know from some colleagues who left at the same time who have found it more difficult and I’m sure there’s luck in there somewhere.
“I think it can be a struggle financially and I think sometimes people need the support structure you have around you, particularly if you have worked at senior level. Some people miss that support structure that a job with a capital J gives you, whether that’s someone to sort IT or to sort your train tickets. Some people miss that more than others. I have always been quite self-sufficient so that was not a problem for me. The being outside of the office environment, that was probably what I missed most, being part of a team.
“I think for self-employment, you need to have a certain risk-taking kind of mentality, being comfortable with risk and uncertainty because it’s not the same, you don’t have that sense that you know what you will be earning in October.”
He added: “The idea that you will hop from employer to employer is changing slightly so I think more people will have spells of self-employment and back and forth as the economy shifts.
“That’s something in the cultural sector you are very used to, people moving in and out of things, it’s in the DNA of the sector.”
But for Robin Beveridge, who was made redundant during the closure of One NorthEast three years ago, the path through self-employment has been slightly rockier.
“It’s been brilliant in one sense, you have freedom and flexibility and it’s a lot more interesting than just working for one place, the variety is good,” said Robin.
“But it is very uncertain, you do not know one month to the next what your income is going to be so it is a challenge if you have kids, you have to put their welfare first.”
Robin was self-employed full-time with his community interest company Your Back Yard until a few months ago when he joined as poverty project manager for the North East Child Poverty Commission at Durham University. He now works part-time for them and is part-time self-employed.
“A few months ago I decided I needed a regular income that’s why I applied for the role as poverty project manager,” said Robin.
He added: “When One North East closed down I was part of the fall-out of that and self-employment was always something I wanted to try. I am glad I did it but I think Resolution Foundation is right to point out it is a hidden form of underemployment and a hidden form of poverty.”
Neil Foster, Policy and Campaigns Officer for the Northern TUC, said: “While self-employment can be a positive choice and fulfils aspirations for many people, for some it’s the lesser of two evils rather than a dream come true.
“The North East has lost 49,000 public sector jobs under the Coalition Government and this has forced quite a lot of people to consider self-employment rather than take a low paid or zero hour job.
“The Resolution Foundation’s findings show is that despite a growth in self-employment the average pay is down 20% from before the crash.
“This goes to show that austerity policies are as bad for people starting out in business as they are for those in regular employment.”