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What the UK can learn from the US and Switzerland when it comes to embracing self-employment
- 17 Aug 2023
This week, the Office for National Statistics (ONS) published their latest estimate on the overall self-employed population, suggesting that the UK’s self-employed headcount achieved four successive quarters of year-on-year growth between the third quarter of 2022 and the same period this year.
You can read IPSE's reaction to the latest figures here.
In total, there are now 4.3 million self-employed individuals operating in the UK – 64,000 more than this time last year. However, the impact of the pandemic on the self-employed population should be noted, with the headcount falling from a record high of more than 5 million at the onset of the pandemic to 4.2 million by mid-2021.
With this in mind, we decided at IPSE that it would be interesting to see how this compares with countries from the rest of the world and what the UK can learn from countries fostering a more conducive environment for self-employment to flourish.
The United States
We start by looking at the United States, where prior to the pandemic, self-employment had been on a steady rise since 2013.
Interestingly, much like the UK, the self-employed population in the US fell during the pandemic, dropping by just over 800,000 individuals between 2019 and 2020. However, unlike the UK, the US self-employed population has recovered to pre-pandemic levels and is now experiencing incremental growth.
In fact, after falling to 15.2 million in 2020, the US self-employed population quickly recovered to 16.1 million by 2021.
As of January 2023, there are now around 16.2 million self-employed individuals, comprising roughly 10.1 per cent of the US workforce.
Why has the US self-employed population recovered to pre-pandemic levels unlike the UK?
This largely depends on how you evaluate the impact of macroeconomic factors and government policy on self-employed businesses, but faster economic growth in the US and wider economic conditions are undoubtedly a key factor.
Economic conditions
The US economy has bounced back from the pandemic and is experiencing strong growth whilst, comparably, the UK is stagnating, experiencing much higher levels of inflation and low economic growth.
Notably, US GDP is 6.2 per cent higher than the UK as of Q2 2023, with the latest Office for National Statistics (ONS) figures revealing that the UK economy increased by just 0.2 per cent between April and June 2023. Comparatively, in the second quarter of 2023, the US economy was growing at a rate of 2.4 per cent.
Government support during the pandemic (or lack thereof in the case of the UK!)
Secondly, government support during the pandemic for self-employed businesses may also be a factor in the recovering self-employed population levels in the US.
For instance, the US government was quick to support self-employed businesses at the onset of the pandemic, introducing a $2 trillion economic relief package that expanded unemployment benefits to cover self-employed workers.
Whilst the UK was also quick to act with the introduction of the Self-Employment Income Support Scheme (SEISS), the US stimulus package was able to provide support to all models of self-employment unlike pandemic support here in the UK.
As many of you will be all too aware, many self-employed businesses were forced to close altogether in the UK due to the exclusion of limited company directors from SEISS.
Although it’s still impossible to fully evaluate the impact of covid support on businesses during the pandemic, it’s evident that these varying levels of support have had a profound impact on the percentage of businesses closing in that period.
For instance, estimates suggest that nearly 400,000 businesses closed after the first year of the pandemic – accounting for roughly seven per cent of all businesses in the UK. Comparatively, estimates for the US suggest that 800,000 businesses closed between March 2020 and February 2021, representing around 2 per cent of the all businesses in the US.
Growing self-employed women population
Finally, as a result of the pandemic and an increased burden of childcare responsibilities placed on (largely) women, self-employment has since become a more attractive option to this cohort.
Indeed, the percentage of self-employed individuals in the US that are women has increased from 34 per cent in 2016 to almost 40 per cent now whilst the number of self-employed women with children is now also 8 per cent higher than rates seen in January 2020.
However this doesn’t fully explain the self-employed recovery to pre-pandemic levels as the UK has experienced a similar increase in the number of women, increasing by 93,000 between 2022 and 2023.
Switzerland
We now move on to look at Switzerland – often hailed as a country that does things differently.
In 2021 alone, self-employment in Switzerland increased by 6.4 per cent, with the total number of self-employed operating in Switzerland standing at 0.72 million – comprising 14 per cent of Switzerland’s overall workforce.
Notably, in the first quarter of 2023 alone, Switzerland registered just over 25,000 self-employed start-ups – averaging 145 new self-employed start-ups per day and representing a 4.5 per cent growth on new self-employed businesses compared to the same time last year.
Why is self-employment growing in Switzerland?
Economic resilience to the pandemic
Unlike the UK and the US, Switzerland didn’t suffer from a drop in their self-employed population during the pandemic, with the population remaining steady.
One explanation for this is the fact that the Swiss economy was able to remain resilient to the pandemic and not experience a recession. Instead, both the UK and the US suffered from two successive periods of contraction throughout this period.
Changing attitudes towards work following the pandemic
Interestingly, many workers in Switzerland have reduced their hours since the pandemic, with the autonomy and flexibility of self-employment preferred by an increasing percentage of Switzerland’s labour market.
In fact, the average working time of the Swiss workforce fell by 3.4 per cent between 2019 and 2020 – perhaps unsurprisingly given the impact of the pandemic – but this trend has since continued.
In addition, self-employed workers in Switzerland are ranked as some of the happiest workers, consistently ranking job satisfaction above 80 – well above the European average.
It is therefore unsurprising that Swiss residents are turning away from traditional employment and seeking the control and satisfaction of self-employment.
Access to funding and support
Another key factor is the fact that the Swiss government offers significant funding opportunities for SMEs and start-ups. Indeed, funding offered as capital for business ideas from the Swiss government has tripled since 2012.
Given the funding available to these entrepreneurial endeavors, Switzerland boasts the highest number of patents per person in the world.
If the UK is serious about becoming the global home of artificial intelligence – as Rishi Sunak has outlined – providing additional funding for fledgling self-employed businesses, could be a welcome start.
What can the UK learn?
The UK must learn that the self-employed are a vital cohort for powering wider economic growth. It’s evident from the examples of both the US and Switzerland that targeted policies – such as support during the pandemic or with funding for SMEs – are essential in making self-employment an attractive and aspirational career choice.
It feels like the UK has lost its way in recognising the contribution of the self-employed. The imposition of IR35 and recent MSC investigations are both cases in point. Is it not time that we see UK government policy reflect that the self-employed make an important contribution not just to the clients they serve but also to the wider economy?
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