Increasing self-employment is, alas, not the answer
One of the marked characteristics of the last 150 years of economic development is the rise of the large firm. In the days of Adam Smith, a company with 10 employees was already quite large. Toady, a company like Foxconn, which assembles your Iphone, has (about) 1,6 million employees, Walmart has 2,1 million and McDonalds has 1,9 million. Together, the last two companies have more employees than the USA army. A ‘Coasian’ view of this development is that, for some reason or another, large bureaucratic planning systems enable firms to profit from economics of scale (branding, outsizing unions, production) in increasingly global markets characterized by increasing commoditization. Consistent with the rise of these mega-companies, high numbers of ‘self-employed’ seem to characterize economies with relatively low levels of income.
In the European Union, increasing the number ‘self-employed’ is often seen as a method to make labour markets more flexible and economies more resilient and competitive. This won’t work. And it didn’t work – high numbers of self-employed did not shield countries from the crisis.
To the contrary. It might have exacerbated the problems: the paradox of flexibility.
According to the OECD,
In 2011, the share of self-employed workers in total employment ranged from under 8% in Luxembourg, Norway and the United States to well over 30% in Greece, Mexico and Turkey. In general, self-employment rates are highest in countries with low per capita income although Italy, with a self-employment rate of around 25%, is an exception. Ireland and Spain also combine high per capita incomes and high self-employment rates.
Over the period 2000-11, self-employment rates have fallen in most countries and by 1.6 percentage points in the OECD area. These falls have mostly occurred prior to the onset of the global financial crisis in late 2007. However the Czech Republic, the Netherlands, and the United Kingdom saw moderate increases and the Slovak Republic sharp increases, albeit from low levels. Conversely, and starting from a higher level, there have been sharp declines in self-employment rates in Chile, Greece, Italy, Korea, Poland, New Zealand, Mexico, Portugal and Spain.
Levels and changes in total self-employment rates conceal significant differences between men and women. In 2011, only Mexico, Switzerland and Turkey recorded self-employment rates for women higher than those rates for men. In the case of Turkey, almost half of all women with a paid job are self-employed, down from 78.4% recorded in 1990.
Don’t misunderstand me: there are quite some tasks which are performed much better and cheaper by self-employed people. In my country, it’s ten (10) times cheaper to let your self-employed family doctor stich a wound than when this is done in the emergency department of the hospital. Ten times. But family doctors do not learn to stitch, anymore, as they are basically trained to be hospital doctors. It might be that the tide is turning and well paid self-employment is on the rise, leading to higher productivity, happier workers and satisfied customers. I don’t see it.