Bill Jamieson: Are low pay and productivity good news?

News that Scotland's jobless had fallen to 3.8 per cent and employment had risen to 74 per cent would once have been greeted with unalloyed cheer. For long stretches of the past 30 years our most pressing problems stemmed from unemployment.

A Deliveroo rider on Byres Road in Glasgow. Picture: John Devlin

Now it’s good news of course. But the figures reflect a profound and continuing change across the economy and in the nature and type of employment.

More people than ever are now self-employed or working in the “gig” economy – those on “zero hours” or short-term contracts or freelance work. There are around one million gig economy workers, while self-employment overall has risen across the UK to five million.

And this change has been accompanied by news that’s not so good: real pay after inflation is lagging the levels of ten years ago and is continuing to fall. According to the Institute for Fiscal Studies, it will not return to its pre-crisis level until at least 2021.

At the same time there has been growing unease over the growth of job insecurity and lack of protection – a concern directly addressed last week in the report by former Tony Blair adviser Matthew Taylor on modern working practices.

His Good Work report on the “gig economy” had an impossible task: seeking a role for government to ensure all work is “fair and decent” without regulation inimical to the very flexibility that clearly attracts many people including those keen to provide services for app-based platforms such as Uber and Deliveroo. His report suggests a new category of employment – the so-called “dependent contractor” that would extend traditional employment rights such as sick and holiday pay to the gig economy but also oblige job platform providers to pay national insurance contributions.

Many fear it will not stop at the large gig job provider but extend in due course to the wider category of self-employed.

It is tempting in Scotland to regard this as a problem local to the London area, and one largely confined to young male workers, cab drivers and pizza deliverers. Gig employment may not be as prevalent here – but there is no doubting that Scotland has experienced a change as radical as that across the UK as a whole in self-employment.

This was well highlighted in a report last month by Kenny Richmond and Jonathan Slow of Scottish Enterprise and published by the Fraser of Allander Institute.

Its key findings are eye-opening for many who have tended to regard the growth of self-employment as a male-dominated phenomenon and one largely regarded as a stopgap until “something better comes along”.

It finds self-employment in Scotland has grown fast in recent years. It accounts for almost half of overall employment growth over the past decade and over 80 per cent of the growth in the number of businesses in Scotland.

Overall, the number of self-employed has risen by 26 per cent over this decade to 304,400 – slightly lower than for the UK (29 per cent).

The growth in self-employment has boosted the number of businesses in Scotland, with the number rising 30 per cent since 2006 to more than 350,000. Self-employed businesses accounted for 82 per cent of this rise.

UK government research has also found an overwhelming majority (87 per cent) stated positive reasons as their motivation for becoming self-employed. The most frequently cited reason is the freedom, flexibility and independence of being self-employed compared with working for someone else.

Research at the UK level – and it is assumed to be the same for Scotland – showed that:

◆ Self-employed workers are broadly content with their labour market status;

◆ The main reported benefits of being self-employed are increased flexibility over working patterns, independence, and job satisfaction – the main motivations are opportunity-based, not financial; and

◆ Many expect to be in self-employment in three years’ time.

There is little evidence that large numbers want to stop being self-employed. Most feel their lives are “better off” overall compared with being an employee, and half believe they are better off financially (although evidence shows earnings are significantly lower relative to larger businesses).

“Overall,” say the authors, “it seems that self-employment is viewed as a ‘positive choice’ by most, despite relatively low incomes; people appear to value independence and flexibility over financial returns.”

Wealth losses following the financial crisis (such as lower pension values) may have led to some older self-employed workers choosing to work longer, and older employees postponing retirement to boost their retirement income.

Flexibility, particularly for female workers, is a key driver in the rise of self-employment. Women tend to take on the majority of family caring responsibilities, and self-employment offers the opportunity to work around these.

Another is autonomy. Increasingly workers are not solely driven by financial incentives: more people want to “be their own boss”.

And another driver is technology – it has become easier and less costly to start a business. The costs of IT equipment have fallen substantially, while the use of the internet and social media has expanded, making it easier and less costly for self-employed businesses to advertise and market.

Women account for 70 per cent of the growth in the number of self-employed in Scotland, while men and women aged 65 and over account for 20 per cent of the increase. Rural areas tend to have higher self-employment rates, due to a high level of self-employment in agriculture.

As for the emergence of “new” sectors and jobs – digital marketing and data managing – because they can be undertaken from home, there may be more opportunities for self-employment.

Low productivity may reflect that the self-employed do not benefit – generally – from “economies of scale” as do larger businesses. Also, self-employed people may generate less output if a significant amount of time is spent pitching for work.

As for pay, research suggests that hourly earnings of almost half of self-employed people are below the National Living Wage. “Notwithstanding this,” says the report, “most self-employed people are content with their working status, including their financial status and reward.”

No matter the suggestions of Matthew Taylor, workers and employers will constantly seek solutions that provide flexibility, convenience and new ways of earning money in a digital economy that’s changing rapidly.