Why are the self-employed included in employment statistics, but excluded from earnings figures?

01 Jul 2015, by Ripped Off Britons Guest in Economics

There are many ways to raise an average. For example here are two ways to raise Average Earnings:

Have more people on high pay Have fewer people on low pay

And here are two ways of having fewer people on lower pay:

Pay the low paid more Just ignore them

The Average Weekly Earnings (AWE) statistic produced by the Office for National Statistics (ONS) is a closely followed measure of the performance of the UK economy. Ministers eagerly pop out to celebrate when earnings rise faster than inflation (very rare since the 2008 crash), hoping to convince the public they are waving not drowning.

Latest stats show pay packets grew at 2.7% in April – fastest real increase since start of crisis. Good news for working people — George Osborne (@George_Osborne) June 17, 2015



Source: House of Commons Library

The ONS states, in relation to Average Weekly Earnings (AWE):

“AWE itself is an estimate of average earnings per employee per week. It is calculated by dividing total (weighted) pay by total (weighted) employment.”

The ‘weighting’ they refer to is intended to make the figure “representative of the Great Britain economy as a whole”.

In fact, these statistics don’t represent the whole economy. The ONS explicitly ignores three groups of workers from these figures, stating:

“The self-employed, HM Armed Forces and Government Supported Trainees are excluded from the statistics.”

HM Armed Forces and Government Supported Trainees contribute just a couple of hundred thousand individuals, and so make relatively little difference to the national average wage.

On the other hand the self-employed make up 15% of the UK workforce. According to the ONS’s Labour Force Survey, in April-June 2014 the Self Employed numbered 4.6 million out of a total workforce of 30.6 million. [Note that ONS data on self-employed earnings at the time of writing this post is available up to 2012/13].

The average earnings of employees, who are not self-employed, have fallen since the 2007/08 banking crisis. But considerably less than the earnings of the self-employed:

The British ‘jobs miracle’, by which unemployment did not explode as expected following the banker-induced crisis was according to the ONS the result of the growth of self-employed workers. The ONS stated in August 2014:

“The rise in employment over the past six years has been predominantly among the self-employed. There were 1.1 million more workers in April-June 2014 compared with January-March 2008, among whom there were 732,000 more self-employed.”



Source: ONS

And yet while government statistics use the Self Employed to show national employment has gone up, they exclude the downward pressure from the Self Employed on the national average earnings calculation.

The increase in Self-Employment is likely to persist as the government erodes employment protections and not least due to various government shenanigans with pensions requiring people to work to an older age: demise of Defined Contribution pensions; change of indexation from RPI to CPI; freedom for people to cash in pension pots; pushing back the state pension age. The ONS stated in its report in August 2014 titled “Self-employed workers in the UK – 2014”:

“- The number of over 65s who are self-employed has more than doubled in the past 5 years to reach nearly half a million

– The number of women in self-employment is increasing at a faster rate than the number of men (although men still dominate self employment)

– Average income from self-employment fallen by 22% since 2008/09

– Across the European Union the UK has had the third largest percentage rise in self-employment since 2009”

Including the Self-Employed in the Average Wage Statistics, even as a separate item, would be very revealing. Which is precisely why no government would want to do it.

Being able to keep people out of both the Unemployment Stats (because they are self-employed) as well as keeping them out of the average wage figures (because they are self employed) provides a very useful black hole to both ignore and not ignore a growing cohort of low paid UK workers.

[P.S. We hope it is not too churlish to mention that this will also be of particular interest to our MPs, whose pay after their bumper 10% pay rise in 2015 will be linked to the change in this ONS Average Weekly Earnings figure (excluding the self-employed)].