Employment versus Self-Employment
The reason for submitting this project is to complete my degree
BA ACCOUNTING and FINANCE (Hons) MAY AT TVU 2009
The objective of this paper was to study how social, individual factors affect people’s decisions to either become employed or self-employed. Using a survey administered to 100 respondents in the U.K, the study provides evidence that there are no significant differences in the way the two employment categories are affected by social, individual and environmental factors. However, significant differences are observed on how the difference groups are affected by specific variables considered under the different factors: for example, under the social factors, people’s choices to either become employed depend significantly on whether their parents held posts of responsibility such as being a boss or director in a company as well as on whether their parents had higher education; under the institutional factors the evidence suggests that taxes and local government significantly affect people’s choices of whether to choose employment or self-employment.
In this part of the project I wanted to thank all my friends and family which have helped me to finish successfully this project. First of all, I wanted to thank my supervisor, Ken Spriggs for a great support by assisted my work in right direction. Then, I wanted to thank my family for allowing me more time to study and giving me support needed.
Table of contents
Table of contents………………………………………………………………………………4
Introduction (including aims &objectives)….………………………………………….……5/6
Literature review …………………………………………………………………………..7/11
Research Methodology & Data Description………………………………………………12/13
Discussion of Findings ………………………………………………….………………………………………..17
Conclusion and recommendation………………………………………………………….…18
The level of self-employment can be regarded as a direct measure of entrepreneurship. Entrepreneurship plays an essential role in promoting economic development (Djankov et al., 2006). One should, therefore, expect to observe a tremendous increase in economic development if the level of self-employment is high. Given self-employment’s ability to foster entrepreneurship and thus economic development, it is important to study the factors that influence an individual’s decision to go into self-employment.
A number of theories that explain the existence of ‘the firm’ have been suggested. Some of the theories take the technological perspective; others deal with transaction costs; and others take an evolutionary view (Frederic, 2000). Economists have attempted to attribute the existence of the firm to technological factors and to the presence of economies of scale (advantages that a firm gets due to its large size). However, based on Coase and Williamson, Frederic (2000) argues that technological factors and economies of scale do not explain the phenomenon of the firm itself. Furthermore, Frederic (2000) following Fisher (1991) argues that the neoclassical theory of the market does not make room for the firm and may lead to various explanations that have no real organising principle.
From a sociological standpoint, there are three distinct perspectives on entrepreneurship. The first perspective focuses on deriving an understanding of the role of economic, political, and legal institutions in promoting or limiting entrepreneurship (Djankov et al.., 2005, 2006, 2007). Entrepreneurship is often restricted by credit constraints, which make it difficult for potential entrepreneurs to borrow and set up new ventures. In addition, insecurity of property rights and regulatory constraints also has a significant adverse effect on entrepreneurship and thus on economic development (Djankov et al.., 2005, 2006, 2007). The second entrepreneurial perspective is concerned with the sociological factors that determine entrepreneurship. Many sociological studies have stressed the importance of values and social networks in fostering or hindering entrepreneurial activities. Social networks affect entrepreneurship through a number of channels including family, friends, or ethnic groups (Djankov et al.., 2005, 2006, 2007). The third entrepreneurial perspective stresses the importance of individual characteristics of entrepreneurs. Psychological studies suggest that there are a number of personality traits that determine whether an individual can become a successful entrepreneur or not. Some of these traits include personal need for achievement, belief in the effect of personal effort on outcomes, degree of risk aversion and individual self-confidence (Djankov et al.., 2005, 2006, 2007). In this study it is believed that, since self-employment is a direct measure of entrepreneurship, the traits that influence entrepreneurship can also influence self-employment.
Little research has been conducted on the factors that influence people’s decisions to become self-employed. It is the interest of this paper to study the factors that affect people’s decisions to go into self-employment rather than searching for paid employment in the U.K. Understanding these factors have a lot of policy implications. Given that self-employment is a direct measure of entrepreneurial activity which in turn affects economic development, the study will help the U.K government to focus on improving the institutional factors that have a positive impact on people’s decisions to become self-employed while at the same time taking measures to eliminate deterrents to self-employment.
1.2 Research Objectives;
The objective of the study is to determine the institutional, sociological, and individual factors that affect self-employment in the U.K.
1.3 Research Questions;
What are the institutional, sociological and individual factors that affect self-employment in the U.K? This question will be answered by looking at how the three entrepreneurial perspectives affect the people’s decisions to become self-employed in the U.K.
1.4 Outline of the Study;
The rest of the paper is organised as follows: section 2 presents the literature review which covers the advantages, disadvantages and trends in self employment; section 3 presents the methodology; section 4 presents the empirical results and section 5 presents conclusions and Recommendations.
- Literature Review;
The Literature on the above topic has focused attention on people’s motivations to either become self-employed or employed. Being employed has benefits and disadvantages. In like manner being self-employed has benefits and disadvantages. In the past, it seems that many people who used to be self-employed tended to be engaged in farming, though perhaps less so in more industrial countries like the UK. However, Hamilton (2000) notes that there has been a tremendous increase in the number of people who are self-employed in the non-farming sector since the 1970s.
- Advantages of Self-employment;
Self-employment has been regarded by many countries especially transition economies as a means of achieving economic development especially in transition or developing economies (Mohapatra, 2007). de Soto (1989) considers the self-employment sector as the underpinning of economic development. Schumpeter (1943: 132) argues that the self-employment sector is the “prime mover of economic growth”. This view of self-employment can be justified for two main reasons: (i) Self-employment increases the size of the private sector thus reducing pressure on public services such as unemployment benefits and job-seekers allowances; (ii)self-employment has the potential of increasing government revenue and thus reduce the government budget deficit through an increase in the amount of taxes collected from self-employment activities in an economy. Self-employment is considered to be particularly important in rural areas because it provides new opportunities for workers with the potential of improving their incomes, increasing capital assets, as well as improving their living standards through the transition of new ventures from small to medium and large companies (Henley, 2002). In addition, self employment offers individuals the opportunity of being their own boss as well as the flexibility of scheduling their time, taking holidays, as well as the opportunity becoming rich (Blanchflower, 1998). An employed individual on the other hand does not enjoy such flexibility. He/she must apply for leave of absence, work a specified number of hours every weak, and earn a specified amount of money every month. This means that the self-employed person has more flexibility in the way he/she is doing work and also has the potential of making more money than the wage or salary employee who must depend on his/her wages for survival.
- Disadvantages of Self-employment;
Despite the above arguments in favour of self-employment, there have been some negative concerns have been raised about self-employment. Mohapatra et al. (2007) argue that not all scholars reason in the direction of the proponents of self-employment as a means of fostering economic growth and development as stated earlier. For example, Mazumdar (1983); Portes et al. (1989) all argue that the emergence of self-employment rather reflects an informal form of employment particularly in transition economies. In support of this view, Gong & Soest (2002); and Tokman (1992) suggest that the self-employment sector can be regarded as an unproductive informal sector of the economy which serves as a means of survival for disadvantage, less educated, and unskilled workers who face difficulties gaining employment. This indicates that the emergence of self-employment reflects a sign of distress rather than one of growth and development. Self-employment means going into entrepreneurship which involves a great deal of risk. The self-employed person may lose his/her job, savings and even marriage because of the stresses and strains that are involved in doing a successful business (Blanchflower, 1998). Self-employed people are usually contractors. Such people may go for months or even years without any revenue if contracts are not forthcoming. In addition, a self-employed person may have one big customer for whom he/she sells goods or offers services. The self-employed person runs the risk that this customer may stop ordering from him/her and as such lead to business failure. This indicates that to be self-employed an individual must have a number of different customers. As portfolio theory suggests it is important for an individual to diversify their portfolio and not put their resources into a single risky activity. Government’s view that self-employment is the route to poverty alleviation has been challenged by a number of authors. For example, it has been suggested that new ventures can help in promoting invention, creativity and innovation and create new jobs. In addition, it has been suggested that new firms can increase competition in the product market, which will lead to an improvement of the goods and services offered in the market (Blanchflower, 1998). However, economists believe that these benefits are more apparent in theory than in practice. Birch (1997) for example, argues that small firms are the creators of jobs, which go a long way to support the view that self-employment is very important in fostering economic growth and development. However, Davis et al. (1996) argue based on an empirical analysis of the job creation process to date that “conventional wisdom about the job creating powers of small businesses rests on statistical fallacies and misleading interpretations of the data” (1996, p.57).
- Cross-Cultural Variations in Self-Employment;
Some studies have observed gender differences in self-employment. For example, Clain (2000) investigates gender differences in the propensity for self-employment and in the levels of earnings in each type of employment using econometric techniques. (Clain, 2000). The results suggest that women who make a choice of becoming self-employed have personal characteristics that are less highly valued by the market than those who choose to work for someone for a salary or wage. On the contrary, men with characteristics that are highly valued by the market are more likely to be self-employed than men who do not have such skills (Clain, 2000).
The Literature on self-employment has also focused on understanding the factors that lead to self-employment in the United Kingdom. For example, Robson (1998) notes that there are regional variations in male self-employment in the U.K as shown in appendix 1, which shows the average rate of male self-employment as a percentage of the total work force in different regions in the U.K for successive five-year intervals (Robson, 1998). It can be observed that all U.K regions have contributed a significantly to male self-employment over the period 1974 to 1993. The only exception is Northern Ireland which did not witness a significant increase in male self-employment over the period 1974 to 1978. Northern Ireland therefore, its number six position in the rankings of regional rates of male self-employment. All other regions show a great deal of stability in the relative magnitudes of regional male self-employment rates (Robson, 1998). This is evident from the increase in the correlation coefficient from 0.82 over the period 1974-8 and 1990-93 to 0.94 assuming that Ireland is excluded as an outlier from the study (Robson, 1998). Another interesting point that can be made from appendix 1 is that there is a North South divide with respect to self-employment in Great Britain. It can be observed that there the most poorly performing regions with regards to male self-employment are Scotland and Northern Ireland.
Some studies have focused on understanding the different ethnic groups that are likely to be self-employed, how they raise funds, the businesses they carry out and the difficulties faced when raising finance.
Appendix2 shows the number of people who were self-employed in the UK as at 1991. The figures show that most of the self-employed in the UK as at that time were the ethnic minority groups with the Indians representing the Asian ethnic minority group with the highest percentages of self-employed as compared to their total number. Chinese demonstrated a total number of 17,869 people. Of this total, 14.9% were self employed. They were followed by the Indians with 11.4% self-employees out of a total number of 97,340. Next came the Pakistani with a self-employment percentage of 8.3% out of a total number of 22,642. The Bangladeshi was the only Asian ethnic group that demonstrated a self-employment percentage below that of the whites. That is, 5.9% as opposed to 7.0% for the whites. As compared to the Black Caribbean ethnic group, one can see that the Asian minority demonstrates a far higher percentage of self employment than any other ethnic minority or white group in the UK. Largely, this is because of large families and Asian culture and traditions.
Having identified the different groups most likely to be self-employed and thus become entrepreneurs, it is important to understand why these groups engage in entrepreneurship or self-employment. The above evidence suggests that ethnic minorities are the ones who are most likely to be self-employed and thus go into entrepreneurship in the U.K. A number of factors have been identified as influencing their decision to become self-employed. Most ethnic minorities tend to engage in small businesses or self-employed activities because of the difficulties faced in securing a job (Smallbone et al., 2003). Some of them simply want to be independent and others do business just for the doing of it. Some of them enjoy being referred to as business men. In addition, it is usually more difficult to meet work permit requirements as an immigrant in the UK and as such the most lucrative source of income for the time being is business. We can therefore conclude that some of the ethnic minorities enter into business during waiting times for work permits and other home office requirements. Another important reason that one can advocate for Asians entering into business is language barriers. Irrespective of their qualifications some of them might be unable to express themselves in good English and as such may find it difficult securing a job.
Having identified the reasons why they go into self-employment, we now consider the type of business areas or industries in which they operate. Ethnic minority businesses in Europe including the Asian ethnic minority community in the earlier years centred their businesses around saturated and unprofitable niches. However, in recent times, ethnic minority businesses have started engaging in emerging business sectors such as mobile phones, IT consultancy and computer manufacturing (Ram et al., 2004). Others are engaged in less technology-driven areas such as nursing, teaching and training agencies, and care homes. They are also recently increasing their presence in media, insurance and financial services (Ram et al., 2003: p.669). From table appendix4 shows that ethnic minorities are involved in retail and mobile phones with a few of them in wholesale, fashion, laundry and IT. This indicates that they may well be relegated to low-rewarding activities as earlier mentioned in the introduction, though many ethnic minorities are middle class and well-off (e.g. as doctors – over 40% of NHS doctors are ethnic minority). In addition, some are engaged in more sophisticated industries such as hotels, shipping and steel manufacturing (Fallon and Brown, 2004: p. 139).
Appendixes 1-5 show the different ways in which the Asian ethnic minority groups raise finance. As we can see the main sources of their start-up funds are both from formal and informal sources of finance. Formal sources mainly include bank loans, and other sources such as grants and venture capital firms. Informal sources include personal savings, family and friends.
Trends in Self-Employment;
According to Lindsay and Macaulay (2004), self-employment in the U.K. has witnessed a tremendous increase over the last two decades. The growth rate in self-employment has increased since 2002. Citing a previous article published in 2003, Lindsay and Macaulay (2004) suggest that during the year to September 2003, the number of self-employed people in the U.K increased by 282,000 representing a percentage increase of 8.9 percent from the year 2002. During the same period, the number of people in paid employment remained unchanged. Since 2003, the number of people who are self-employed has been rising but at a reduced rate; for example, during the year to June 2004, the number of self-employed people increased by 108,000 from the previous year. Appendix6 illustrates trends in self-employment in the U.K over the period 1985 to 2003.
It can be observed from appendix6 that the number of people in self-employment increased drastically over the period 1986 to 1989. The growth in self-employment levelled off in the 1990s right up to the around 1997 when there was a decline in the rate. Since 2000 the number of people in self-employment has been rising and as at 2003, the total number of self-employed people stood at approximately 3.5 million people as shown in figure 1 above.
Macaulay (2003) provides a comparative analysis of the trends of self-employment against those of employees. The analysis suggests that trends in self-employment and employees have followed different patterns as shown in appendix7 above. It can be observed that the number of employees has been rising over the years while the number of self-employed has been somewhat constant. Total changes in self-employment have been relatively small when compared to the changes in employees (Macaulay, 2003).
There are two main types of scientific approaches to tackle a research problem. They include the deductive and inductive approaches (Saunders et al., 2009). Under the deductive method, a theory and hypothesis (or hypotheses) are developed and a research strategy is developed to test the hypothesis. (Saunders et al., 2009). It involves formulating a tentative theory of the phenomena, determining the consequences of the implied empirical evidence, as well as controlling situational events so as to observe the validity of the empirical deductions (Bonoma, 1985: 199). The deductive method is often regarded as the scientific method. It is used to test theoretical knowledge by employing “logical principles of deduction” (Bonoma, 1985: 199). The deductive approach is often associated with quantitative methods, which focus on large samples, standardised measures, and highly structured interview instruments as a means of collecting data to test hypothesis (Marlow, 1993). The inductive approach on the other hand enables focuses on developing theory depending on the results obtained from analysing data (Saunders et al., 2003; Bonoma, 1985). This paper employs the deductive approach because it is the most suitable approach in question. The paper does not intend to develop theory. Rather it is interested in testing an existing relationship. Therefore, the deductive approach is the most suitable approach to use.
As earlier mentioned in the introduction, three sociological perspectives of entrepreneurship have been identified. These include institutional, social and individual perspectives. The institutional perspective is concerned with the government’s role in promoting entrepreneurship as a means of improving economic development. This study believes that these perspectives can also affect people’s decisions to become self-employed. For example, how easy is it for new ventures to raise finance for new ventures? Does the government provide any support for new ventures? To what extent does the legal system protect people’s properties? Providing answers to these questions can help one to determine whether the institutional environment is promoting or hindering self-employment. The social perspective is concerned with the impact of societal variables on an individual’s ability to become an entrepreneur and thus self-employed. For example, does the natural culture promote entrepreneurship or not? Family background, friends, relatives and communities are some of the variables that need to be considered. The individual characteristics that can influence entrepreneurship include things like the individual’s need for achievement, belief in effect of personal effort on outcomes, attitude toward risk, as well as the self-confidence of the individual. Also understanding these variables can one to make a distinction between who is likely to become self-employed or employed.
The study will employ both primary and secondary data. Secondary data will be collected from past studies published in peer-reviewed journals as well as from other reputable databases and websites. Secondary data will provide a basis for determining what is already known about self-employment versus employment both in the U.K and abroad. To achieve the main objective of the study, primary data will be collected by means of a questionnaire that will be administered to respondents. The questions will be structured in such a way as to enable the researcher to understand the sociological, institutional and individual factors that affect people’s decisions to become self-employed.
- Empirical Results
To achieve the Objective of this study, a questionnaire was administered to 100 respondents with the objective of determining the factors that affect their decision to either become self-employed or employed. Only people who were employed or self-employed were included in the study. The factors are grouped under three categories including institutional, individual and social characteristics. The data was analysed using the SPSS statistical software. The remainder of this section presents an analysis of the results and main findings.
To help understand the meaning of the tables (appendices 8 through 10), frequency measures the total number of people in each category (employed and self-employed categories) who gave a particular response. Percent is a measure of the proportion of the total population of that category that gave the said response, the cumulative percent is the total proportion of the population at a given point in time. For example, in appendix 9, 56 people of the total population under investigation said they were employed, while 44 said they were self-employed. Looking at the self-employed group, one can observe that 32 people representing 57.1 percent of the total employed group and a cumulative percent of 57.1 percent so far were female. The remainder of the employed category (24 people) representing 42.9 percent were male. Adding 42.9 percent to 57.1 percent gives a cumulative percent of 100.
Table 1 (appendix8) presents the nationality of the different employment categories under study. It can be observed that a total of 56 respondents are employees while only 44 are self-employed. Of the 44 self-employed, 27 have a foreign nationality while only 17 have a British Nationality. Preliminary analysis from the table indicates that foreign nationals are more likely to become self-employed in the U.K.
Table 2 (appendix9) illustrates the gender of both the self-employed and employed groups. It can be observed the self-employed group is dominated by males while the employed group is dominated by females. 65.9 percent of the self-employed group were males as opposed to 34.1 percent females. For the employed group, 57.1 percent were females as opposed to 42.9 percent males.
Respondents were also asked to disclose information relating to their ethnic origin. This information is reported in table 3 (appendix10). As can be observed from the table, there were 5 ethnic backgrounds including White, Asian, Black British, Afro-Caribbean, and Other Black Backgrounds. Both the employed and self-employed groups were dominated by Whites and followed for the employed sector by Asians whereas, for the self employed sector by other black ethic groups. The employed sample is composed of 39.3% white followed by 33,9% Asians and 21.4% other blacks. Afro-Caribbean and Black British ethnic groups constitute the least proportion of the employed sample with respective percentages of 1.8% and 3.6%.
The self-employed sample is also dominated by the white and followed by Other Black ethnic groups with respective percentages of 43.2% and 29.5%. The Asians, Afro-Caribbean and British ethnic groups constitute the least proportions of the sample with respective proportions of 18.2%, 6.8% and 2.3% each.
In appendices 11 through 13, the researcher is interested in understanding whether there are significant differences in the manner in which the different factors affect the two employment groups. To do this, we conduct a “test of equality in means”, which enables one to either reject or ‘not reject’ the hypothesis that the two populations are affected in a similar manner by the social factors. To do this, a p-value of between 5 percent and 10 percent is specified. The p-value is the smallest level of significance at which the null hypothesis can be rejected. By specifying a p-value of between 5 and 10 percent, we want to be at least 90 percent confident that a true null hypothesis is not rejected and 90 percent confident that we do not fail to reject a false null hypothesis. The mean difference is a measure of the difference in mean for each variable between the employed and self-employed groups. The t-value also known as the test statistic (denoted t in each of appendices 11 through 13) is a quantity, calculated based on a sample whose value represents a basis for deciding whether or not to reject the null hypothesis. Sig is the probability of significance. If the p-value (sig) for a given variable is below 10 percent we conclude that there is a significant difference in the way the employed and self-employed categories are affected by that variable. Otherwise, if the sig is greater than 10 percent, we conclude that there is no significant difference in the way the variable affects the employed and self-employed categories.
4.1 Social Factors That Influence Self-Employment versus Employment
To determine whether social factors affected people’s decisions to either become self-employed or employed, a test of equality in means was conducted on how the social factors affect the different groups. A significant difference in means would indicate that the two groups are affected differently and that social factors have an impact on people’s decisions to either become employed or self employed. The results are presented in table 4 (appendix11). It can be observed that self-employed and employed groups exhibit significant differences with respect to the manner in which they are affected by the educational level of the father, the position held by the father (that is whether the father was a boss or director), and the position held by the mother. There are also significant differences between the two groups in terms of whether the siblings or cousins have been running a business. There are no significant differences between the two groups in the manner in which they are affected by the other social variables.
4.2 Individual Factors.
Individual factors were also tested to determine whether there are significant differences in the manner in which the two groups are affected. The emphasis was on understanding how the different groups value work, power, intellectual achievement, service to others, financial security and friends. The results are summarised in table 5 (appendix12).
In appendix 12 we are interested in understanding whether there are significant differences in the manner in which
Based on a significance level of 5 percent, it can be observed from table 5 that there are no significant differences between the two groups in the way the individual factors affect them. The results are somewhat surprising given that self-employed people would normally be expected to place more importance to work and power because they are assumed to be interested in working hard to make their lives as well as having enjoying having autonomy over their activities. On the contrary, employed people would normally be expected to be highly affected by intellectual achievement and financial security. Intellectual achievement would enable employed people to gain qualifications that can help them get into highly paying jobs. In addition, employed people would normally be more financially secured because their salaries and wages are guaranteed by their employer. On the contrary, self-employed people depend on themselves for financial security which is a bit risky should things go wrong. However, the fact that no significant differences exist between the two groups in terms of financial security is not surprising. Every human being is interested in having financial security irrespective of whether they are employed or self-employed. Consequently, the results should not be very surprising.
4.3 Institutional Factors
Table 6 (appendix13) illustrates the differences in mean between self-employees and employees with respect to institutional factors. It can be observed that there are no significant differences between the two groups with regards to the impact of institutional factors on self-employment. The above conclusion is based on a significance level of 5 percent. However, increasing the significance level to 10 percent, it can be observed that there is a significant difference between the two groups in terms of the impact of the local council on self-employment. It can also be observed that there are significant differences in the way the different groups perceive taxes on employment income. The self-employed group is highly motivated to be self-employed because of some of the tax loopholes available to them. For example, in the U.K self-employed people make their tax assessments by themselves through the self-assessment system. This provides some room for them to shield part of their income from tax and as motivates them to prefer employment over self-employment over employment.
4.4 Discussion of Findings
The main finding from the analysis is that self-employed and employed groups do not show any significant differences with regards to the different social, individual and institutional factors. With regards to the social factors, the results show that the only factors that differences are observed between self-employed and employees are the educational and professional levels of parents. This indicates that the family has a significant impact on the ability of one to become self-employed. In addition, one’s educational background also plays an important role on whether the person will be employed or self-employed. The findings are contrary to earlier findings by Djankov et al. (2005) who observe significant differences between entrepreneurs and non-entrepreneurs based on results from a Russian study. Although Djankov’s (2005) study is not directly focused on employment versus self-employment, it can be used as a framework for this study because self-employed people can be considered entrepreneurs while employed people can be considered non-entrepreneurs and the factors that affect self-employed people should also affect entrepreneurs while the factors that affect non-entrepreneurs should also affect employees. With regards to institutional factors, there are no significant differences between the two groups for any of the variables considered. Finally, with regards to the institutional variables, the local council and taxes plays a significant role in determining whether someone would be employed or self-employed. Taxes also play an important role in this regard in creating a context that facilitates entrepreneurship – one which is arguably more flexible and entrepreneur-friendly in the UK, with its relatively low taxes and flexible employment law, than in other EU countries such as France, for example.
Respondents were also asked to describe in their own words why they would choose employment over ‘self-employment’ and vice versa. Most of the self-employed groups said they were self-employed because they had enough freedom to decide on what to do and when to do it. Some said they were self-employed because they could not find employment. Respondents from the employment group said they preferred employment over self-employment because their jobs are more secured. Moreover their post-retirement incomes were more guaranteed under employment than under self-employed. Finally, some said, they were not ready to bear the risk that comes with self-employment.
The foregoing is consistent with the general view that people who are self-employed tend to be self-employment because they want to have more freedom over their time and income. On the contrary, people prefer to be employed because jobs are more secured and income is more guaranteed.
5. Conclusions and Recommendations.
The objective of this study was to determine whether employees and self-employed in the U.K are affected differently by a number of perspectives including social, individual and institutional perspectives. Using a sample of 100 respondents composed of 44 self-employed and 56 employees, the findings suggest that both groups are equally influenced by the social and individual perspectives. The most significant factor found to be affecting the decision to become employed or self-employed is the institutional perspective. The main variables under this perspective include the impact of the local council and the impact of taxes.
The foregoing evidence has implications for policy makers in fostering self-employment in the U.K. The institutional environment needs to be improved to ensure that people are motivated to go into self-employment activities, especially perhaps those people with a low prospect of gaining employment. For example, most people are put off because of lack of funding for their projects. The government needs to institute funding schemes that would ensure that projects are transformed from paper to reality. However, it is unclear how useful government funding such as this helps; in fact, such state bankrolling may act as a threat to entrepreneurship, fostering a culture of state dependency, and thus achieve the opposite of what it intends.
Tax breaks need to be given to people with creative and innovative ideas so as the materialisation of new ideas and the creation of new goods and services that can be sold abroad. This will in turn boost net exports and thus increase economic growth. By promoting self-employment, the government will reduce the unemployment rate. Young people who would otherwise be unemployed could become employers. This will in turn ease off the pressure on the government by the unemployed, in terms of welfare payments and social problems.
In short, the economy needs both employed and self-employed people, and the government should do all it can to create a climate that encourages the latter for the benefit of all.
Blanchflower, D. G. (1998) Self-employment in OECD Countries Department of Economics Dartmouth College and National Bureau of Economic Research.
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Source: Robson (1998: 314).
- Appendix2. Cross-Cultural Variations in Self-Employment
Table 2: Self employment rates for selected ethnic groups in great Britain, 1991.
|Total Number of self employed by ethnic group||2,922,917||13,392||97,340||22,642||5060||17,869||3,078,436|
|As % of economically active members of ethnic group||7.0||3.4||11.4||8.3||5.9||14.9||7.0|
Source: Adapted from Dhaliwal (2006) quoting Barret et al (1996: p. 784)
Table 3: Source of start-up capital: contribution of each source
|Degree of reliance|
|None||Less than or equal to 50%||Greater than 50%||Mean share of each source|
|Personal savings||47 (26.7)||55(31.3)||74(42.0)||51.01|
Figures in brackets represent the percentage share of the sample
Source: Adapted from Basu (1999).
Table 4: Financial sources
|Code||Ethnicity||Sector||Source of finance|
|S2||Pakistani||Wholesale||Family and friends|
|B15||Bangladeshi||Retail||Family and friends|
|L7||Chinese||Estate agent||Personal savings|
|L8||Chinese||Restaurant||Family and friends|
|S10||Pakistani||Mobile phones||Personal savings|
|B5||Pakistani||Mobile phones||Family and friends|
|B19||Indian||IT||Family and friends|
Source: Adapted from Ram et al (2004).
Table 5 : External Finance from Formal Sources at Start-up ( Finance from sources other than personal savings, family or friends)
|Firms Obtaining External Finance||Firms Obtaining Bank Finance||No. of Respondents (N)|
Source: Adapted from Smallbone et al (2003)
Source: Lindsay and Macaulay (2004: P. 400)
Source: Macaulay (2003: p. 624)
|Self-employed/Employed||Frequency||Percent||Valid Percent||Cumulative Percent|
Table 2: Gender of the different Respondent Groups
|Self-employed/Employed||Frequency||Percent||Valid Percent||Cumulative Percent|
Appendix10.Table 3: Ethnic Origin
|Self-employed/Employed||Frequency||Percent||Valid Percent||Cumulative Percent|
|Other Black Background||12||21.4||21.4||100.0|
|Other Black Background||13||29.5||29.5||100.0|
Table 4: Test of equality of Means between Self-employees and Employees (Social Factors)
|Variable||t||Sig. (2-tailed)||Mean Difference||Std. Error Difference|
|Own a Car||-.887||.377||-.088||.099|
|Own a Computer||-1.147||.254||-.099||.086|
|Spend More than half of income on food||.527||.600||.052||.099|
|Father had higher education||2.528||.013**||.24513||.09698|
|Father was a boss or director||-2.223||.028**||-.21429||.09638|
|Mother had higher Education||-.066||.947||-.00649||.09768|
|Mother Was a Boss or Director||2.715||.008***||.26299||.09686|
|Parent had Wealth when you were 16 was above average||-.483||.631||-.04708||.09756|
|Where your grandparents running a business?||-.978||.330||-.09903||.10124|
|Have Your parents or aunts or uncles ever been running a business?||-1.386||.169||-.13961||.10075|
|Have Your siblings or cousins ever been running a business?||-2.054||.043**||-.20130||.09800|
|How many of your high school friends have become business people||-.066||.947||-.00649||.09768|
***Significant at 1percent;
**Significant at 5 percent.
Table 5: Test of equality of Means between Self-employeds and Employeds (Individual Characteristics)
|Variable||t||Sig. (2-tailed)||Mean Difference||Std. Error Difference|
|Work is very important in life||-.528||.599||-.05357||.10142|
|Power is very important in life||-.575||.566||-.05844||.10156|
|Intellectual Achievement is very Important in life||-.352||.726||-.03571||.10161|
|Service to others is very important in life||-.528||.599||-.05357||.10142|
|Financial Security is very important in life||-1.294||.199||-.12987||.10039|
|Friends are very Important in life||-1.294||.199||-.12987||.10039|
Table 6: Test of equality of Means between Self-employees and Employees (Institutional Factors)
|t||Sig. (2-tailed)||Mean Difference||Std. Error Difference|
|People in your town are favourable towards self-employeds||-.302||.763||-.02760||.09133|
|The local council promotes self-employedship||-1.858||.066*||-.18344||.09872|
|Central Government in promotes self-employedship||-.941||.349||-.09253||.09833|
|I will go to court if cheated by supplier or client||-.304||.762||-.03084||.10138|
|I will go to court if government official abuses power||-.931||.354||-.09416||.10112|
|Taxes on employment income are very high||-.931||.024*||-.09416||.10112|
*Significant at 10percent;
**Significant at 5 percent.