The evolution of UK self-employment: A study of government policy and the role of the macroeconomy

This paper reports the findings of a time series analysis exploring the fundamental determinants of the substantial rise in U.K. self-employment over the period 1972-92. The key findings are that the self-employed/wage-employed income differential has a high and positive effect upon the proportion of the workforce in self-employment, supporting alternative wage theories of labour market status, as does housing wealth, supporting credit-rationing theories. Perhaps the most interesting feature concerns the relationship between unemployment and self-employment. On this we find that it is the duration structure of unemployment that matters, not simply the stock of unemployed people. This evidence may imply that self-employment is a last resort for certain individuals marginalized in the employed sector and facing lengthy spells of unemployment.