03Is the geography of self-employment changing over time?

Self-employment has grown faster in cities than other parts of the country

Self-employment has been growing continuously since the early 2000s and has grown even faster in the aftermath of the financial crisis. Self-employment grew by 35 per cent since 2004, growth five times higher than that of overall employment. As a result, five million individuals in the UK — around one in seven of those in work — are now self-employed.

Since the financial crisis, growth has been particularly fast in cities, increasing by 44 per cent between 2008 and 2016 compared with 28 per cent elsewhere. As a result, self-employment is now more concentrated in cities than at the start of the period: 52 per cent of self-employed people lived in cities in 2016, compared with 49 per cent in 2008.

However, the components of this growth have changed over the past 10 years. Breaking down the growth into two periods — one immediately after the financial crisis and a second between 2012 and 2016 — reveals clear differences.

Between 2008 and 2012, self-employment grew particularly fast in a handful of southern cities, and was driven by self-employment as the only source of income

In the years just after the financial crisis, self-employment in cities grew by 20 per cent. However, much of the growth was concentrated in a handful of cities, predominantly within the Greater South East of England (Greater London, the South East and East).

Growth in self-employment was highest in Crawley and Slough — 31 and 40 per cent respectively — and also high in Luton and London, while it was much slower in cities outside these regions, such as Sheffield and Blackpool where self-employment only grew by 10 per cent.

This overall growth was led by the increase in self-employment as the only source of income. This increased by 22 per cent in cities between 2008 and 2012, compared to self-employment as additional source of income which grew by only 15 per cent.

Since 2012, self-employment growth has been more evenly spread across cities, with self-employment as an additional source of income growing particularly fast

Continuing the trend of the previous period, self-employment in cities also grew by 19 per cent between 2012 and 2016, but the nature of this growth was different from that of the previous period in two ways:

1. The growth gap reduced between cities in different parts of the country. Cities in the Greater South East experienced slower growth than in the previous period — 20 per cent against 23 per cent between 2008 and 2012. In other cities, self-employment growth was slightly faster between 2012 and 2016, at 18 per cent compared to 17 per cent in the
   previous period.
2. Self-employment growth since 2012 was led by self-employment as an additional source of income (see Figure 7). Between 2012 and 2016, self-employment as an additional source of income grew by 26 per cent, significantly faster than the 15 per cent growth rate in the previous period. In contrast, growth in self-employment as the only source of income slowed to 17 per cent.

This was true everywhere in the country, but particularly in cities in the Greater South East where self-employment as additional income grew by 30 per cent between 2012 and 2016, compared with 22 per cent in cities elsewhere.

This suggests that self-employment and its nature vary according to the performance of the economy. When the economy is weaker — such as in the period immediately after the financial crisis — self-employment as the only source of income grew at the same time job losses surged, suggesting self-employment increased in response.

On the other hand, as the economy improved, the nature of self-employment changed and self-employment as an additional source of income started growing again. This was particularly evident in cities in the Greater South East, which tend to have stronger economies.

Recent growth in city-based self-employment has been driven by a handful of industries²¹

Construction contributed to the biggest share of self-employment growth. Between 2012 and 2016, it accounted for nearly 100,000 new self-employed jobs in cities — 44 per cent of all new self-employment in urban areas — and over 40,000 self-employment jobs in other, less urban areas (see Figure 8).

Financial and other professional services and other personal services, such as hairdressers and beauticians were also among the most popular industries for self-employment growth, underlining for policymakers that self-employment is concentrated in a few sectors.

Transport and logistics also saw a big increase in self-employment numbers, but this was concentrated in cities. Since 2012, this industry created nearly 40,000 new self-employment jobs in cities, in occupations such as taxi drivers, other private hire and couriers.

This was in stark contrast to areas elsewhere in the country. While in cities transport and logistics was the second most popular industry in terms of self-employment growth, it only accounted for 3 per cent of all self-employment growth elsewhere in the country, partly explaining why self-employment has become more urban in recent years.