Graphs at a glance: The self-employed are included in employment statistics, but they are excluded from calculations of UK average wages. So what?

There are many ways, and many more motives, to raise an average. For example here are two ways to raise Average Wages:

1) Have more people on higher pay
2) Have fewer people on lower pay


And here are two ways of having fewer people on lower pay:
2a) Pay the low paid more
2b) Pretend they don't exist

Stick Men from https://pixabay.com/en/stick-man-stickman-stick-figure-34978/

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. Particularly when earnings rise faster than inflation (very rare since the 2008 crash) ministers pop out to celebrate, 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

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02795

The ONS states: 
"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 were 4.6 million out of a total workforce of 30.6 million.

[Note that ONS data on self-employed wages at the time of writing this post is available upto 2012/13]. 

The wages of the self-employed fell between 2007/08 and 2012/13 both in real terms (£62 a week worse off, adjusted for inflation - the graph below shows 2012/13 prices) and in nominal terms (£23 a week worse off, when counting the number of £s in your pocket).

The wages of those who are not self-employed, who work for an employer, have also fallen since the 2007/08 banking crisis. But not nearly as much as the wages 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."

http://www.ons.gov.uk/ons/rel/lmac/self-employed-workers-in-the-uk/2014/rep-self-employed-workers-in-the-uk-2014.html

It seems a bit dodgy to use the Self Employed to show unemployment hasn't risen, while excluding the Self Employed from the national average wage calculation. The large differences in estimated pay rises for each group are shown in the graph below for the years ONS data is available, 2002/03 to 2012/13:  

The increase in Self-Employment is likely to continue 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 is likely 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 ignore a growing portion 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)].