The Bank of England has blown apart claims that Britain’s growing army of self-employed workers is joblessness in disguise.
After delving deep into the jobs data, the Bank has concluded that the bulk of the increase in self-employment since the start of the recession has been voluntary rather than enforced.
The findings are significant because they suggest that there is little “spare capacity” in the labour market to soak up job creation. As a result, employers will be under pressure to raise wages.
For the Bank, which is paying close attention to pay growth to gauge underlying inflation levels, the conclusion suggests that interest rates may need to respond towards the end of the year once oil-led deflation drops out of the official data. Its analysis underlined its prediction last month that average earnings growth will double from 1.75 per cent to 3.5 per cent this year.
Self-employment has increased by 600,000 since 2010, accounting for nearly a third of the 1.9 million jobs created. Some economists have claimed that the rise of the self-employed is a form of “hidden unemployment” because people have been unable to secure employee jobs.
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However, in a broad analysis of Britain’s changing labour market, the Bank said that the increase in self-employment was the continuation of a long-term trend and that there were few signs of hidden unemployment.
“The evidence suggests that of the increase in self-employment since 2008 the majority has not happened as a consequence of economic necessity. Instead, people seem to have been voluntarily choosing to become self-employed,” the Bank said in its Quarterly Bulletin. “While the recession may have pushed some workers into self-employment where they otherwise might have been unemployed, there is little evidence to suggest this was a major factor.”
The bulk of the increase in self-employment, which constitutes 15 per cent of all UK workers, up from about 12 per cent at the start of the millennium, has been largely the result of the continuation of a longer-term trend among women and the older generations.
The report coincided with hawkish remarks from Martin Weale, a member of the Bank’s monetary policy committee, who said the labour market was tightening. Wage growth was accelerating and if this continued in the next few months, it would “strengthen the case” for a base rate rise, he said in a speech yesterday.