Self-employed work harder and longer for less

Apr 13 2006 by Nic Paton Print This Article

Self-employed men in Britain work longer hours for lower wages than their employee counterparts, new research has suggested.

The study for the Economic and Social Research Council found self-employed men faced greater uncertainty in their working life and so worked harder as a way to insure their future livelihoods.

On top of this, there was no evidence of growing female self-employment, or the anticipated greater labour flexibility resulting from self-employment during the 1990s.

The project, conducted by Professor Simon Parker and Olufunmilola Ajaji-obe of the Durham Centre for Entrepreneurship at the University of Durham, sought a better understanding of the nature of work and the labour supply of self-employed people by studying various employment data sources in the UK and the U.S

"More than one-in-ten workers are self-employed in the UK, they employ a similar number of people and run most of the UK's firms. This makes them a very important part of the overall labour market," said Professor Parker.

"The study has revealed a number of key findings that might make it easier for policy-makers to successfully promote entrepreneurship and self-employment," he added.

Although self-employed people worked long hours, they were less satisfied with the length of time they felt they had to work than paid employees.

Given the chance, male self-employed Britons responded to higher earnings by working fewer hours.

The research also looked at the retirement behaviour of older self-employed workers.

"We found that younger entrepreneurs are significantly more sensitive to new information than the older ones. However, overall the whole group adjust their expectations of unobserved productivity, in the light of acquiring new information, by only 16 per cent," said Professor Parker.

"Another observation was that greater, or potentially greater, earnings around retirement age decreases the probability of retirement of the self-employed. It seems to be, 'Why stop whilst there's a good thing going?' Ė a very understandable sentiment. Gender, health and family circumstances appear to have little bearing on entrepreneurs' retirement decisions," he added.

Advantageous welfare benefits policies could alleviate income risk, Parker suggested, making self-employment more attractive.

In encouraging self-employment, Government should target younger rather than older workers as fewer workers switch into this form of employment in later working life, he added.

Policies promoting better health among older workers were likely to discourage the self-employed switching to paid employment, whereas for employees such policies would principally postpone retirement, he argued.

Entrepreneurship programmes should be open to all levels of experience and promote continuous business awareness and learning.

While entrepreneurs exploited new information, they gave greater weight to their prior beliefs when forming their expectations, he concluded.