Is all this talk of freedom through self-employment damaging jobs growth?

Self-employment has boomed since the start of the economic downturn. While overall employment figures have grown at a glacial pace, the number of self-employed people has shot up to its highest ever level. Almost 370,000 people became newly self-employed in the 4 years since 2008, and according to the Small Business Research Centre at Kingston University, one-person businesses now account for some 8 per cent of private sector turnover.

There are obvious benefits to the growth in the number of one man bands. Most obviously, it keeps people in work. Were they not to have created their own jobs, many would no doubt still be searching for those elusive vacancies in large corporations. Indeed, the Federation of Small Businesses estimates that more unemployed people now find work through self-employment than within large firms (the annual figures being 85,000 and 65,000 respectively).

Arguably the most important benefit of self-employment, however, is greater freedom and independence. Some enjoy this for practical reasons. The self-employed by and large have the flexibility to work when it suits them, taking the day off here and there when childcare falls short or when caring for a relative needs to take precedence. Others enjoy freedom purely for its own sake – some simply can’t fit within a rigid hierarchy or report to seniors. Whichever way you look at it, the desire for independence is now recognised as one of the biggest factors driving people to start their own business. Our own coversations with young entrepreneurs revealed as much earlier this year.

But herein lies the rub. While the urge to be one's own boss does indeed motivate people to create their own jobs, it may also act as counterforce discouraging those who have already become self-employed from hiring their first employees. How likely is it that, after working hard to get away from hierarchy, self-employed people would be willing to create their own version by taking on new recruits? Likewise, what are the chances of a self-employed person wanting to grow their business if it means needing to regularly be in the office to oversee workers? Here the desire for autonomy works both ways: people want freedom just as much from below as they do from above.

Overcoming the reticence among self-employed people to taking on their first employee is vital if we want to create jobs and grow businesses that can compete on the world stage. Yet in this we are surely failing. The same research by FSB showed that during one particular quarter, only 4.3 per cent of self-employed people without employees took on workers. This reflects a wider problem regarding the reluctance of small businesses to grow. As pointed out in a previous blog, fewer than a quarter of SMEs have a ‘substantive’ ambition to expand, and as many as a third of businesses experienced more or less static growth over the last 3 years.

The implication of all of this is that if we want to encourage more self-employed people to take on their first employee, then we may need to talk less about freedom and independence when advocating self-employment (which only hardens such concerns) and appeal more to other wellsprings of entrepreneurial intent - for instance the power of business to act as a vehicle for translating ideas into practical action, solving problems, or achieving social status. Whatever is decided, it is clear that government and others in the business support sphere need to start advocating business growth and employee recruitment far more strongly.