The wage floor is rising, but what about the self-employed?


The lively debate around low pay – which has rocketed up the political agenda since the Chancellor unveiled his National Living Wage in July – is one that tends to confine itself to the experience of those in traditional employee jobs. There are good reasons for this, but we shouldn’t be blind to the acute and growing challenge for the 4.5 million workers in the UK who are self-employed.

The absence of the self-employed from the low pay debate isn’t down to prejudice on the part of analysts but rather the fact that their earnings aren’t captured in the ONS’ main earnings data. However, less timely data does give a figure and allows comparison with employees, which we’ve assessed for the first time in our annual audit of low pay in Britain.

We’ve previously highlighted that self-employed earnings are lower than employee earnings and have fallen further during the downturn. Their earnings also appear to be more unequal, particularly at the bottom end of the distribution. Among other things, this reflects the fact that the minimum wage doesn’t apply to them and they generally have more flexibility to set their rates in order to fit work around other commitments. For this reason it is perhaps unsurprising that the self-employed are much more likely to be low paid according to the standard ‘relative’ measure of pay less than two-thirds of typical earnings. We find that over half (51 per cent) of full-time self-employed people are low paid, compared to around one-in-five employees (22 per cent).

What is striking however, is the steady increase in low pay among the self-employed since the early 2000s. Its prevalence in this group has risen by a quarter since 2002-03, at a time when low pay among employees stayed flat. The scale of this increase suggests that the dramatic fall in self-employed earnings in recent years has affected low earners as much as, if not more than, higher-earning self-employed people. In addition, the growth in self-employment that characterised the early part of the employment recovery may have brought about a shift in the make-up of the group towards lower-paid work and lower-value business models.

The drivers of rising low pay among the self-employed will be complex. And some of it may unwind in coming years, particularly if the large increase in self-employment goes into reverse (there are tentative signs that this has started to happen in 2015). But for now at least, while we shouldn’t forget that most self-employed people are content with their status, this analysis reminds us of the financial challenge self-employment represents for many of those who opt for this way of working.

Low Pay Britain argues that while the National Living Wage (the raising of the minimum wage for the over-24s) is extremely welcome and will drive big reductions in the severity of employee low pay, it alone cannot tackle Britain’s longstanding low pay problems. We need a more rounded view, including a low pay strategy that moves beyond the employee wage floor to consider things like pay progression opportunities across the workforce.

And of course higher wages are only one part of the broader challenge of raising living standards for those on low incomes. Action on earnings must be complemented by a focus on boosting employment and a tax and benefit system that encourages work. It’s important that the self-employed are put at the heart of these debates too.

LPB self-employment