I’ll just do it myself

Figures came out of the UK last month that placed their unemployment rate at 4.3 per, the lowest it’s been in 42 years(!). The UK’s unemployment rate has falling steadily since 2011, when it peaked at 8.4 per cent.

More than 2.5 million jobs have been created in that time — around a third of which have been self-initiated. Between 2011 and 2016, the number of self-employed Britons grew by 813 thousand to over 5 million, about for 15.4 per cent of its workforce.

The UK self-employment rate is quite high when compared to other OECD countries, particularly amongst countries with similar living standards. The self-employment rate in the US for instance is 6.4 per cent. Those OECD countries with higher rates of self-employment tend to be your Greeces (35.4), your Mexicos (32.1) and your Koreas (25.5).

Is this increase a sign of a thriving entrepreneurial spirit or an indicator of desperation? Are we talking about Mark Zuckerberg or Walter White? Studies have shown that there is a link between local unemployment rates and the rate of new business start-ups. Studies have also shown that new-business creation is counter-cyclical, because there is “less pressure on individuals to start businesses out of necessity”.

Neither driver is necessarily bad. We want an economy that is on the one hand able to foster entrepreneurism spirt, while on the other, be sufficiently frictionless that labour can still be productive when paid employment options are wanting.

Australia’s self-employment rate is 10.1 per cent — 1.2 million persons. (Some estimates put it as high as 2 million. The 1.2 million figure comes from the OECD and allows for a comparison across countries.)

However, where the rate of self-employment in the UK has been climbing for near two decades, the number of self-employed Australians has been falling for 40 years. The rate of self-employment in the UK and Australia were actually about equal in 2005, but since that time the two have diverged by 20 per cent in each direction. The absolute number of self-employed in Australia hasn’t moved since the start of the millennium.

 

Self-employment rate, Australia and UK, 2000-2016

Notes: Self-employment can be defined in a variety of ways. For convenience and comparability, this chart uses the OECD’s definition —the employment of employers, workers who work for themselves, members of producers’ co-operatives, and unpaid family workers.
Source: OECD.

While something is certainly going on in the UK, there doesn’t seem to be much of burgeoning freelancing “gig economy” in Australia. The corollary of this would seem to be that either the system isn’t fostering much of a Zuckerbergian spirit, or that the Walter Whites are being employed by incumbent firms. If it’s the former, then that obviously doesn’t bode well for innovation and productivity. And if it’s the latter, then it might demonstrate a robust economy, but it does seem to imply that forces of disruption are somewhat muted.