Owen Jones and labour economics

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It appears that the latest campaign from Owen Jones and all things left is about the shameful way in which the self-employed are treated. Given that this group includes both Jones and your humble writer this is of course something of great interest. Sadly however, Jones is, as usual, entirely at sea with any economic concept more complex that "it's all so unfair, innit?"

If booming levels of self-employment are an indicator of a thriving economy, then Greece is the powerhouse of Europe. Just under a third of the population of this austerity-ravaged nation are self-employed, more than double the EU average. Spain is another go-getters’ paradise, it seems: with half an entire generation out of work, self-employment among the young has surged. And then there’s Britain, where around 40% of the rise in jobs since 2010 is down to self-employment. If our rulers are to be believed, here is entrepreneurial flair and British dynamism in action, a vindication of the government’s “long-term economic plan”. But the plight of the self-employed is being ignored. It is time that the left began championing their cause.

Well, strip this of the rhetoric and perhaps there is a point there. Spain and Greece do indeed have a paucity of jobs and a surplus of people who would like to do one. So, what's the cause of this? The amount that people are willing to pay to get a job done is lower than the amount that people are willing to accept to do a job. As we know, prices adjust to balance the supply and demand for anything, this is the function of a market.

As we also know if, through government action, that market is not allowed to change prices so as to balance supply and demand then it will balance anyway.

But self-employment spells precariousness, insecurity and falling living standards for all too many. Last week George Osborne lauded figures indicating that wages were rising; but what is often neglected is that the 15% of British workers who are self-employed are stripped out of these figures. There is little up-to-date research on their income, but the Resolution Foundation suggests that between 2006-07 and 2011-12 their weekly earnings dipped by a staggering 20% – and there was a big rise in underemployment, or self-employed people doing far fewer hours than they would like.

Quite so. Given that formal employment costs more than employers are willing to pay (or, the same thing, that the government imposition of conditions and extra costs makes the residual wage lower than people will accept) then the price of employment is lowered by side stepping some of those costs of employment.

Self-employment is often a means for businesses to hire workers without offering the rights and responsibilities that normally come with employment: private pensions, paid holidays, sick pay or maternity leave, for example.

Again, quite so. We have imposed, through government, a series of costs that are part of compensation but not a part of wages. Thus, if a system exists where those compensation costs can be avoided, and the total compensation is more than the market clearing price, then some part of the labour force will end up with the wages only, and not that compensation part.

So, what is the solution here? Well, if it's government action forcing the price of labour above the market clearing price then the answer would seem to be to stop that government action that does so. Jones, and all things left are of course arguing that such costs should be forced upon all so that even more people can be unemployed. Quite why this is a good idea we're not sure.

But our larger point here is that we are once again seeing the entire blindness of a certain section of the commentariat to reality. If self-employment is rising, because it means that people can escape the costs of employment, which is indeed the analysis they are offering, then this is evidence that the costs of employment are too high. The solution is thus to lower those costs of employment.

The most obvious place to start doing that is to abolish employers' national insurance. This is, after all, one of the major costs that this sort of employment arbitrage is designed to avoid.

We're even, at this point, willing to agree that there might be something to the basic analysis on offer. As long as, of course, Jones and all things left are willing to agree with our solution: lower taxes on employment.