Enterprise and Small Business Principles

Personal characteristics of the self-employed

3.3.1 Gender

Table 3.1 showed that males make up a significantly greater proportion of the self­employed than do females. They have continued to do so throughout the period covered by the table and there appears to be no reason to suspect that this will change dramat­ically over the next few years. However, it is also clear that female self-employment has grown over the total period by twice as much as has male self-employment. This phe­nomenon has been debated recently in the literature. Some commentators have argued that the role of ‘the female entrepreneur’ has become steadily greater as the precon­ceptions of society about the role of women in the workplace have changed (see, for example, Carter and Cannon (1988) and Hakim (1988a)). Other writers have argued that the figures obtained from the LFS exaggerate the true picture. Curran and Burrows (1989) use the General Household Survey (GHS) to show that the ratio of male to female self-employment has remained relatively constant over the years.

The two distinct arguments are resolved when one decomposes the relative changes into two segments. In the first half of the 1980s there was a very rapid increase in female self-employment relative to male. In later years the increases have been similar in proportionate terms. The absolute rise in female self-employment is partly caused by the overall increase in the number of women in the labour market as a whole. Over the period 1979-2005 the female self-employment rate has changed very little, from approximately 5% in 1979 to just over 7.4% in 2005. Daly (1991a) reports that almost all of the increase for females, in the late 1980s, was due to the increasing numbers in total employment, not as a result of an increase in the self-employment rate.

Analysis of the flows into and out of self-employment by gender reveals that the inflow of females was relatively higher than the outflow and higher than the inflow for males over the early part of the 1980s. After 1987 this trend, whilst still applicable to the inflow data, does not hold for the outflow. There was a definite increase in the numbers of women leaving self-employment in the late 1980s. This could be due to differing success rates between sexes or, as Meager (1991) suggests, simply a ‘statistical phenomenon’ caused by the rapid rise in female self-employment in the earlier period. This issue is discussed further in Chapter 9.

3.3.2 Age

Table 3.2 shows the numbers of self-employed by age and also splits the data by gender.

Examining the information contained in Table 3.2 it is clear that self-employment becomes an increasingly inviting option as one nears middle age. This may be due to a potential entrepreneur reaching a capital threshold and being able to afford the start­up costs of a new venture. Alternatively, the former employee may have accumulated sufficient knowledge or experience of a certain trade to try going into business alone. One factor explaining the increased prevalence of middle-aged self-employed could be that this is the vulnerable age for redundancies in times of recession. Experienced and motivated managers and workers made redundant may well be tempted to try their hand in their own enterprise.

Another feature of the table is the increase in the participation of the over-65s. This reflects a number of key points. First, if the business was the creation of the entrepre­neur, there may be considerable reluctance to retire. The self-employed can adjust their hours and effort to cope with the effects of old age and can, therefore, stay on much longer. Second, the self-employed may well not be covered as adequately as much of the employed sector by pension arrangements. They may have to rely on only a state pension and it could very well be that, to some extent, the self-employed cannot afford to retire. Third, many occupations require that their workforce retire at some statutory age and in recent years many firms have actively used an early retirement policy to rationalise the workforce. A good example of this is the local government sector; as

councils are merged with districts it has been important to shed employees. Compulsory dismissals would be unpopular in what is a highly unionised sector.

The comparatively low level of self-employment among the younger age groups reflects the difficulty of establishing any enterprise without sufficient funds or experi­ence. Meager (1991) poses the question of how great is the effect on economic activity rates from the distinct growth in the 65+ group, as growing numbers of people reach normal retirement age? If people are being pushed into self-employment because of redundancy or other factors (and the growth is not coming from the traditional petit bourgeoisie) then are the financial structures which society has designed to deal with ‘ordinary retired employees’ adequate for this new class of older entrepreneur?

The age distribution for the self-employed is roughly similar for both sexes. Meager (1991), however, illustrates that the propensity for males to enter self-employment at an early age is almost four times that of similarly aged females. The ratio falls to about two to one in middle age and then rises again among the oldest age groups. Family commitments and other social factors can explain the mid-range figures. However, it is not at all clear why young women should be so small a proportion of those entering self-employment. The pattern of overall self-employment rates is similar across the range of ages, with some tendency for the increases to be concentrated among the very young and the much older age groups. This does not imply, however, that the average age of the self-employed has become older over the period. The explanation for the growing self-employment rates in the older age range lies in the changes which took place over the same period in the number of employees. Overall, the number of employees grew slightly until 1991, but this growth was particularly rapid among the 20-44 year old age groups, more than offsetting the significant decline in the 45+ age ranges. Given this latter decline, therefore, the self-employed accounted for a growing proportion of all those in work in these older age ranges.

The age profile of the self-employed did change over the 1980s. In particular the average age of the sector fell over the period, although analysis of the flows shows that this was not primarily due to new entrants being younger. Instead, the phenomenon appears to have been caused by the rapid increase in new entrants, who are, by defini­tion, younger than those who comprise the existing stock. Splitting the decade in half, it appears also that the increase in numbers of young entrants in the first half is offset by an increase in outflow of these people in the second.

3.3.3 Marital status

Daly (1991a) analyses the marital status of the self-employed in some detail. The self­employment rate is much lower for single people than it is for people in other cate­gories (such as married, widowed, divorced or separated). This reflects, in part, the fact that people below the age of 25 are less likely to be married than those in the older age categories. However, it also appears that single people of whatever age are less likely to be self-employed. Marriage seems to provide support in establishing a successful enterprise and spouses are often partners in such schemes. Meager (1991) notes that it is often assumed that the female partner plays the role of ‘housewife’ while her hus­band goes out to run his own business. Women should therefore be seen to have less of an impact on the self-employment data if they are married because of this minor role. In fact, the financial support of a spouse may actually be equally (or more) import­ant. If the spouse is already employed, and providing a steady and stable income, there is every reason to expect that this will be of benefit to the potential entrepreneur. This factor can work equally well for women as well as for men.

There are a few differences to note between the sexes. Divorced men have higher self-employment rates than divorced women. This is probably caused by the fact that in many of the family partnerships the man plays a fairly dominant role and he is likely to continue running the business after a divorce or separation. Widowed women have a higher self-employment rate than all other categories. This may be because they inherit such businesses from their deceased husbands. Some will have been partners of the firm before the death, but a large number may well have been ordinary employees elsewhere.

Daly (1991a) stresses the importance of dependent children in determining self­employment rates. Over all age groups there is little difference between men with and those without dependent children. Disaggregating by age group shows that self­employment rates are far higher among men with dependent children in the age brackets 25-34 and 45-54. Men aged 35-44 showed no difference, whilst there was a large difference in the opposite direction for those aged 16-24. Further effects of children are also identified. Women with dependent children are more likely to be self­employed, but they are then less likely to employ others. For men, the opposite is true. LFS data also points to the fact that a large proportion of married people who are both self-employed are partners in the same firm, although responses to the LFS question­naire do not show this directly. It is possible to show, however, that most respondents placed themselves in the same industrial category and it seems reasonable to conclude that this implies some sort of partnership. Further evidence for this is that almost one third of self-employed couples are in the hotel and catering industries where partnership is the norm.

3.3.4 Ethnic group

The ethnic minority population in the UK tends to be concentrated in fairly distinct geographical regions. Communities appear to stick together, where cultural traditions can be observed and family businesses established. Curran and Burrows (1989) used the GHS to examine ‘ethnicity’ and found that self-employment was high among the Asian population, whilst it was much lower (relative to Whites) among those of West Indian origin. They qualify their arguments by stating that 86% of Asians still work for someone else. Those people who are of Mediterranean background (Cyprus, Malta and Gibraltar) were found to be over twice as likely to be self-employed as those of Asian background and over four times as likely as Whites. However, according to the GHS, ethnic minority groups comprised only 7% of the whole self-employed sample and so the arguments about higher propensities among these groups must be kept in perspective. It is true to say that this proportion is higher than their proportion in the working population as a whole, which in 1992 was about 4.5%.

The only group of workers to experience a consistent upward trend over much of the last two decades has been the ‘White’ sector. The West Indian group did not share in the overall increases, whilst the rest did grow in absolute terms (although this growth was not a consistent trend). Table 3.3 shows the proportions of self-employed by ethnic group from the 2001 Census. People in employment from Pakistani and Chinese groups are more likely to be self-employed than those in other ethnic groups in Great Britain. According to the LFS, in 2002/03, around one quarter (23%) of Pakistanis in employ­ment were self-employed, as were around one fifth (18%) of Chinese people. This com­pared with around one in ten (12%) White British people and fewer than one in ten Black people. It appears that whilst certain ethnic groups have experienced an increase in self-employment participation rates, care should be taken when analysing the signi­ficance of these sectors. Traditional beliefs about the ‘corner shop’ family businesses associated with certain ethnic groups are not disproved by the research. However, the relative size of these minorities must be stressed before conclusions about their role in influencing economy-wide self-employment rates are reached.

Clark and Drinkwater (1998) use GHS and Census of Population data to examine how both ‘push’ and ‘pull’ factors may lead members of the non-White, ethnic minority

groups to enter self-employment. They motivate their work by quoting the evidence of Metcalfe et al. (1996), who found that the desire to avoid labour market discrimination in the form of low-paid jobs was a principal explanation for the entry of minorities into self-employment. Clark and Drinkwater (1998) find that there is substantial vari­ation between ethnic minority groups in self-employment, but in general they earn less than Whites, even Whites with similar characteristics. They conclude that any analysis of ethnic self-employment must take into account differences in ethnicity within the minority groups and must avoid amalgamating a particularly heterogeneous sector. The issue of ethnicity and enterprise is discussed further in Chapter 10.

3.5.5 Levels of education

The level of education achieved by the potential entrepreneur has long been seen as a crucial factor in determining both the actual entry into self-employment and, there­after, the longer-term success of the venture. There have been a number of attempts to analyse these factors over the past few years. The results of the studies have thrown up an interesting inconsistency. Curran and Burrows (1989) used GHS data to show that self-employed men are less qualified than men in wage employment. Men in self­employment with employees are more likely to have formal qualifications than those in self-employment without employees. For women, however, those in self-employment with employees are less well qualified than their male counterparts, whilst those without employees are better qualified than their male counterparts and women wage employees

Source: Census (2005). www. statistics. gov. uk

generally. They are, however, less well qualified than male wage employees. The paper concludes that the self-employed appear to have a lower level of educational attain­ment than wage earners, although there is some overlap between the two groups.

Daly (1991a) and Meager (1991) used the LFS to analyse the issue. They both found that, generally, the self-employed appear to have a higher level of educational achieve­ment than employees. Table 3.4 shows the 2001 Census data on qualifications. Whilst earlier findings by authors such as Meager (1991) tend to show the highest rates of self-employment are among those with their highest qualification being ‘A’ Levels or equivalent, Table 3.4 shows that the self-employed (in aggregate) are slightly less well qualified than employees. The lowest rates are among those with higher education below degree level. These qualifications are typically courses associated with a voca­tional career and include banking exams and nursing diplomas.

There is clearly a complex relationship between educational qualifications and parti­cipation rates for the self-employed. That relationship depends critically upon the defini­tions used in defining the data sets and, indeed, upon which survey is used to compile that data.

Turning to the flows into and out of self-employment, there appears to be an over­all increase in the qualifications of the sector over time. This is particularly shown at the extremes of the qualification ladder. The number of people with a degree or equivalent shows a larger inflow than outflow and the proportion within this inflow is higher than that in the stock of self-employed. A similar pattern is seen for those entering the sector with GCSE or equivalent. There are a number of reasons why one might expect a swing towards more highly qualified entrants. First, the data suggests that women in self-employment are, in general, more qualified than men. Since the data also shows a higher entrance rate for women, a higher general level of education should result. Second, as time passes and more young people enter the sector the average level of qualifications will rise because the educational standards of the younger, newly available, workforce are higher than those already self-employed. The final factor may be linked to the increase in the number of schemes that have promoted self-employment over the past few years. The ability of young entrepreneurs to start their own businesses, either by an easing of credit conditions or by direct policy intervention, has meant a larger num­ber of graduates and other highly qualified people being attracted into self-employment.