Self employment and the Bank

I think the Resolution Foundation may well be where the revolution begins.  It is now clearly asking the questions that matter about this recovery, and seems to have the resources to answer them well. Personally, I think their answers will lead to the door of the Bank of England, and what it targets – the ultimate culprit in the melodrama, according to this blog.

The latest example is the RF work on the missing four million – the self employed who are nowhere to be found in many wage statistics.  Given how half the growth in employment since the nadir has come so disproportionately from those working for themselves, this is quite an omission.

Gavin’s Guardian piece argues that the omission accounts for a 20-30% underestimation of the fall in earnings.  Such a staggering number lends support to the view that the productivity fall is partly about labour market behaviour.  For any fixed national income, our labour market is relentlessly good at getting people into work, in whatever form they can.  Hence the numerator stagnates, the denominator expands, the ratio (productivity) falls.  The damning residual.

One of the best analyses in this area comes from Morgan Stanley (no link, but referred to by Polly Toynbee here). It claims that 80% of all employment gains since 2007 are in this category, and credit: the weak economy, some government schemes, the grey economy, immigration and older workers as lying behind this trend.  Self employment is disproportionately part time and less well paid – the total amount of money going to SE workers has actually fallen, astonishingly.

So the “labour intensive low productivity” equilibrium is NOT happening in the big corporate sector.  Their big punchline: the MPC should see there is more spare capacity than they realise.  Don’t tighten!

Gavin also aims some of his fire at the Bank, but kindly accuses them merely of having incomplete information.  I personally think he could go further.  The Bank’s lofty response to all this might be that they know what their job is, it is to keep CPI on a 2% track, and they know perfectly well how it responds to their monetary impulses, thank you very much.  Within the narrow terms of their remit they may be right. They can plug any information they want into their spare-capacity-ometer and go from there.

For me what Gavin and Morgan Stanley demonstrate is that the Bank is just pursuing the wrong thing. What all these figures demonstrate is that national income in cash terms has been growing too slowly.  In our case, it divides out into a greater quantity of low paid marginal work. Such workers might well come back into better jobs when the recovery really motors.  What will happen with inflation then is uncertain.  But compared to the big gap there is to fill in missing incomes, how much does it matter?

The Resolution Foundation is relentless in calling for greater prosperity for low paid people.  Until the entire envelope of national income is expanded, this will not happen.  The Bank is the only entity with a chance of controlling that.  It is time that they targeted it too.


Published by freethinkingeconomist

I'm a mid 40s, former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

5 thoughts on “Self employment and the Bank

  1. Its interesting that in the Guardian report, over 3/4 of the people polled said that they entered SE by choice. Now maybe that is just rationalisation, as Danial Gilbert has documented, people are very good at making lemonade from lemons. But I do think the simple image of a SE person as downtrodden beholden wretch is also a bit too much of a caricature as well. Many people do genuinely enjoy being their own boss, the lack of corporate BS, having a more flexible working arrangement and actually feel more secure with managing their own future as compared to relying on others. And there are some nice tax advantages as well. Many people in company jobs are in a “velvet mousetrap” which is a situation where the job is good enough that you don’t want to take the risk of striking out for something that could be much better. Its really another version of the loss aversion bias. When they are pushed, sometimes people find the water isn’t as cold as they thought. But, ignoring all that, let’s take as read that growth in SE is somehow less good employment growth than growth in full time corporate employment, In the absence of an aggressive BOE monetary stimulus, I guess I would have to give praise to the second best strategy, of keeping, by whatever means, workers in the workforce rather than having them at home on benefits.

    But yes, very illuminating on the whole wage growth, productivity, GDP conundrum, and the reduction is wages is amazing, almost back to an average of 2001. I have got to believe that some of this is a cohort effect, perhaps with European immigration skewing the numbers (same number of accountants doing well but more lowly paid maids), and also less hours being worked by each worker. On the upside I wonder how many of the self-employed are really self-employed and not just working full time for one company that doesn’t want to make the commitment to full time employment yet. In which case, longer term, a lot of these jobs could be really seen as “proper” jobs afterall.

    One final point, this is anecdote only of course, I manage a team of mixed staff and what we call agency staff (who would be categorized self-employed). The agency staff are invariably paid more than the staff, presumably because of the perceived risk of being able to lay them off at a moments notice. I have never managed to get any one of the agency people to convert to staff. My arguments about job security fall on deaf ears, they know the best job security is about being good at their job regardless of being staff or agency and they would rather be paid better now than take a lower pay for really no reduction in risk.

  2. As opposed to my ramblings, Michael O’Connor has a nice data analysis of Self Employment trends in the UK, here;

    He shows that 70% of the increase in SE is in the older (55+) category, primarily as a result of older people choosing to work longer. Which could be one of those bad things or good things depending on how you look at it. Either older people being forced to work when they would rather be at home in slippers in front of the TV, or recognition of the longevity trends and older people can now be more fit and active and contributing to society rather than being the worn out husk that such people once were. Probably a bit of both I guess. But it would certainly fit my ideal of not fully retiring but working less as I get older, perhaps with less responsibilities and more flexibility,

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