How many workers does the typical American firm employ? Actually, it is a trick question. The answer is ‘zero’. More than 50 per cent of all companies in the United States are one person operations – the owner, and no-one else.
This fragmentation of size is increasingly reflected in the UK. Here, the main growth is in self-employment rather than through one-person companies, but the principle is the same. According to the Office for National Statistics, in 2014, 4.6 million people were self-employed in their main job, accounting for 15 per cent of those in work, the highest percentage since data were first collected 40 years ago. Total employment in the second quarter of 2014 was 1.1 million higher than in the first quarter of 2008, just before the economic downturn. Of this increase, 732,000 were self-employed. So the rise in total employment since 2008 has been predominantly among the self-employed.
Good news, of course, which reflects the flexibility of the British labour market, though it seems to come at a cost. The ONS estimates that the average income of the self employed has fallen by no less than 22 per cent since 2008. Ed Miliband and the conventional Left denounce these developments. Proper jobs have not been created, and people have been forced against their will to take large cuts in pay.
Earlier this year, a major study by the Royal Society of Arts exploded this as a myth. Only 1 in 4 who started up in the recession said that escaping unemployment was a key motivating factor. A much more common answer was to achieve greater freedom. The self-employed are also happier than typical employees. Eighty-four per cent agreed that they were more satisfied in their working lives than they would have been in a conventional job (66 per cent completely or strongly so). The RSA argued that forgoing material benefits for more meaningful returns is a sign of a new ‘creative compromise’ at work.
In fact, basic economic theory suggests that well-being increases when people are offered more flexibility in the trade off between work and leisure. To caricature the old days, you were offered a 40 hour week, take it or leave it. But being self-employed allows you to choose your own point on the supply curve.
The RSA’s ideas are being taken forward in an exciting way in a new book by Adam Lent, director of their Action and Research Centre. The book, Small is Powerful, is, naturally, crowd funded. Lent argues that not only is the era of big government, big business and big culture over, but that this is unequivocally a Good Thing. Intriguingly, in the wake of the recent by-elections, Lent writes about Zombie Politics, and why big politics continues despite nearly everyone having lost the faith. He does not really deal with the issue of how, in the internet economy, the small can suddenly become terrifyingly big, witness Google and Facebook. But his book opens a window on how our world is changing.
As published in City AM on Tuesday 14th October