The Evolution of U.K. Self‐Employment: A Study of Government Policy and the Role of the Macroeconomy

Abstract

This paper reports the findings of a time-series analysis exploring the fundamental determinants of the substantial rise in UK 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 labor 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 the authors 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. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester