Enterprise and Small Business Principles

The jobs of the self-employed

3.6.1 Industrial division

The responses that make up the LFS allow the applied researcher to place the self­employed into various standard industrial categories. Intuitively, one would expect most respondents to fall into sectors that are traditionally associated with entrepreneurial or family enterprise. There are high rates of participation in sectors such as agriculture, construction and private sector services whilst there are low participation rates in areas such as manufacturing and those sectors that are dominated by the public sector. Table 3.5 shows the way in which the self-employed make up the major industrial sectors. The main feature is that the self-employed are very highly specialised and con­centrated in a few sectors.

The sectors in which self-employment has a foothold are those (with the exception of agriculture) which have experienced higher than average employment growth dur­ing the 1980s. The sectors which have been in decline are those in which it appears difficult for the option of self-employment to be feasible. Approximately 50% of those working in agriculture are self-employed, yet agriculture only accounts for about 0.1% of total employment.

The recent patterns of self-employment propensities exhibited by an analysis of the changes over the last two decades prompt an important question. Is the recent, and unusual, growth in self-employment caused by structural change in the economy, with a growth in the service sector and a decline in manufacturing? Or is it also heavily influenced by an increase within individual sectors? Research has been performed using ‘shift-share’ analysis. This decomposes the changes over time into that change which would have occurred had the self-employment rates within each industry remained

Table 3.5 Self-employment by industrial sector: England and Wales, 2001

Male (%)

Female (%)

All (%)

All People

17.9

7.8

13.3

A. Agriculture, Hunting, Forestry

54.1

45.9

5.9

B. Fishing

66.9

31.6

0.1

C. Mining & Quarrying

7.2

3.5

0.1

D. Manufacture

8.5

6.4

8.9

E. Electricity, Gas and Water Supply

6.2

1.8

0.3

F. Construction

40.3

12.5

19.1

G. Wholesale and Retail trade, Repair of Motor Vehicles

17.3

7.1

15.7

H. Hotels and Restaurants

19.8

11.1

5.3

I. Transport Storage and Communication

14.6

5.9

6.4

J. Financial Intermediation

9.4

2.8

2.1

K. Real Estate, Renting and Business Activities

22.4

11.2

17.2

L. Public Administration & Defence, Social Security

2.2

1.5

0.8

M. Education

8.1

3.6

2.9

N. Health and Social Work

14.1

6.4

6.5

O, P, Q. Other

23.8

20.4

8.6

unchanged over the period and a residual growth element comprising the growth within sectors over time. Both Meager (1991) and Daly (1991a) illustrate that the sectoral component of growth over the 1980s was much smaller than that associated with the within sector growth. This does not follow the pattern established by the Organisation for Economic Cooperation and Development (OECD) (1986).

In six OECD countries (excluding Great Britain) most of the increase in self­employment over the first half of the 1980s was attributed to a sectoral shift. Meager (1991) notes that it is this feature, of rapid within sector growth, that distinguishes the changes in self-employment in Great Britain from those changes that occurred else­where. Hakim (1989a) draws these points out in some detail. There appears to have been a change in the attitudes of employers to using sub-contracted labour both in the construction industry and elsewhere. This ‘demand-side’ effect is not easy to distinguish from supply-side influences because in most cases it has not been possible to work at a sufficiently disaggregated level. Such details would probably show a larger industry shift component, but at the moment it remains unlikely that such effects could account for more than a small proportion of the total change.

The analysis of flow data for industries is interesting. The pattern of inflow and out­flow is broadly similar to the raw data for stocks. However, certain industrial categories do show greater growth rates than others. In particular the construction industry has a much larger inflow in the early years than outflow, which is consistent with a higher degree of sub-contractor use in the sector. Also, the banking sector shows rapid growth commensurate with the establishment of a great many financial services companies. The recession at the end of the decade is highlighted by a very large outflow from many of these sectors which experienced such growth earlier on. Indeed a large part of the fall in the recession of the early 1990s appears to be accounted for by a substantial fall in the numbers employed in the construction industry in the South East.

3.6.2 Regional differences

Table 3.6 illustrates the self-employment rate by government office region in 2001. The highest rate of 14.7% in Great Britain is the South West (an area hit particularly hard during the recession at the end of the 1980s and beginning of the 1990s) and the lowest rate is the North East at 8.3%.

The regional variations in self-employment rates are not as pronounced as those for the sectoral differences. However, the strong influence of industry type on these pro­pensities suggests that regions where, for example, there is a majority of manufactur­ing firms may well have a lower than average self-employment rate. This can be seen in the cases of the North, where there is a concentration of manufacturing, and the South East, which relies heavily on construction and services. This industrial effect can explain some of the variation across regions, but not all of it. To help to decompose the effects of industrial concentration a shift-share analysis is used.

Another important area that is covered by an analysis of the regional factors asso­ciated with self-employment is that concerned with the correlation between regional unemployment and self-employment. Creigh et al. (1986) failed to find any positive relationship between the variables. They argued that the conventional wisdom that states that unemployment pushes people into self-employment does not appear to hold.

Table 3.6 Self-employment by GB government office region, 2005

Self-employment

(thousands)

Self-employed as % of all in employment aged 16+

Eastern

364

13.3

East Midlands

250

12.3

London

519

15.1

North East

91

8.3

North West

356

11.4

Scotland

235

9.7

South East

591

14.5

South West

360

14.7

Wales

155

11.9

West Midlands

286

11.6

Yorkshire & The Humber

256

11.0

GB

3,463

12.6

Source: Labour Force Survey (2005), not seasonally adjusted

Furthermore, the depressed conditions that are associated with regional unemployment mean that conditions are not suitable for positive entrepreneurial activity and therefore any ‘push’ effect will be cancelled out by these depressed circumstances. Meager (1991), however, does find a positive correlation between unemployment and self-employment for certain regions (the exceptions being Northern Ireland, which had the highest un­employment rate, and the East Midlands, which had a rate slightly below the national average). Blanchflower and Oswald (1991) also found a positive relationship at the regional level, but their model did not include an industrial structure variable.

There is then some debate as to what are the major factors that determine differ­ences in self-employment rates across regions. There is an industrial factor and there is a labour market factor. However, it is not clear what else influences the propensities. Creigh et al. (1986) put the explanation down to an unspecified bundle of ‘other factors’, whilst Blanchflower and Oswald (1991) offer no further guidance. Curran and Burrows (1989) do identify long-standing historical factors as one major influence. They claim that the industrial structure among former generations has a significant impact today. This might suggest that policies aimed at promoting self-employment should be tar­geted at regions that have a history of such entrepreneurial activity, rather than, perhaps, giving block assistance to every region.

It also suggests that differences across regions may well persist even if the other factors, such as industrial mix and the labour market, change over time. Analysis of flow data also shows that regional differences appear to be maintained over time. There are similar proportional representations in the flows as there are in the figures available for the stocks.

3.6.3 Occupations of the self-employed

The section above analysed the self-employed in terms of industrial sectors. It is also possible to examine more carefully the occupational categories that these people fall

into. A common problem is the urge for most self-employed persons to classify them­selves as managers. There is, therefore, a need to compare these responses carefully with those that make up the industrial category decomposition. Such a review is carried out in Meager (1991). The article concludes that female self-employment is much higher than male self-employment in the ‘managerial’ categories. This result is consistent with the results described above, which showed that better qualified women had a relatively higher self-employment rate. One possible explanation for this, put forward by Meager (1991), is that labour market rigidities (perhaps even in the form of positive sex dis­crimination) prevents these well-qualified women achieving in the employee sector. They are then pushed into self-employment in order to fulfil their ambitions.

The flows data given by the LFS reinforces these ideas. Large net inflows are appar­ent in those sectors that, primarily, cover the service industries. One notable feature is that the construction occupation does appear to have a relatively larger outflow than inflow towards the end of the decade. This is consistent with the idea that construction work may be very sensitive to the business cycle.

3.6.4 Other factors associated with self-employment

There are a number of supplementary factors. These include hours of work, employees and the temporary nature of some self-employment jobs. The self-employed report them­selves as working longer hours, in general, than ordinary employees. Self-employment is typically characterised as a very demanding role and, whilst there may be some degree of over-reporting, over 60% of respondents to the LFS throughout the 1980s said that they worked more than 40 hours per week. This compares with less than 40% for employees. The differential is even greater for those claiming to work more than 60 hours per week. The self-employed with employees tend to work longer hours than those without. This finding is supported by Creigh et al. (1986) and by Curran and Burrows (1989). It is also interesting to note that religious background appears to be related to self-employment. As Table 3.7 illustrates, those people of the Jewish faith have the highest percentage involved in self-employment according to the 2001 Census.

Table 3.7 Self-employment and religion: England and Wales, 2001

Self-employed

Percentage of self-employed

Percentage of self-employed within religious group

All people

3,114,490

100.0

12.4

Christian

2,169,828

69.7

12.2

Buddhist

14,637

0.5

18.6

Hindu

43,626

1.4

15.3

Jewish

33,873

1.1

28.0

Muslim

74,254

2.4

15.2

Sikh

23,695

0.8

14.8

Any other religion

15,340

0.5

17.2

No religion

527,544

16.9

12.2

Religion not stated

211,693

6.8

12.5

Meager (1991) reports that two-thirds of the self-employed have no employees of their own. Most of the rest have fewer than 25 employees. Hakim (1988b) stresses that the self-classification of individuals responding for the LFS may lead some small business owners to label themselves as employees rather than as self-employed. This could mean that the figures for those self-employed with employees is underestimated. Turning finally to the classification of employment as full - or part-time, it appears that there is a lower rate of part-time working among the self-employed. This is probably explained by the under-representation of women in the self-employed group.

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