Government ministers need to take a long hard look at the health, income and disability
benefits available to potential entrepreneurs if they are serious about promoting enterprise
in this country. That is the conclusion of new research by Professor Simon Parker and
colleagues, published in the Economic Journal.
The study finds that the self-employed work longer hours than employees do partly in order
to ‘self-insure’ themselves and their families in case they became ill, incapacitated or the
business simply goes to the wall. Although many entrepreneurs enjoy ‘being their own
boss’, few like the stress and family dislocation entailed by long working weeks.
Professor Parker argues that the government should fund a financial safety net to protect
self-employed workers against downside income risk caused, for example, by falling ill and
being unable to work:
‘Sickness or unemployment benefits specifically tailored towards self-employed
workers – or some form of subsidised income protection insurance – would help
make starting up a business vastly more attractive for many people.’
‘The government is a superb insurer – it is always there and will always be there. It could
look at interventions such as low-cost disability insurance or income protection
insurance for self-employed people.’
The researchers find that the self-employed work longer hours for relatively low pay, often
even when their businesses are established, to act as a risk-smoothing mechanism. They
do so because there is no insurance market for self-employed people, or at least one that is
not prohibitively expensive. State benefits that are available were originally created with
employed people in mind and so often take little account of self-employed people and the
way they work.
If the wage uncertainty caused by these uninsured risks means that the supply of selfemployed
people is lower than if these risks were managed through insurance, then in
principal there is scope for the government to intervene.
While there would need to be stringent assessment procedures in place to weed out those
simply looking to milk the system, if ministers got it right, it would go a long way towards the
government’s aim of creating a more dynamic culture of entrepreneurship in this country.
ENDS
Notes for Editors:
‘Wage Uncertainty and the Labour Supply of Self-employed Workers’ by Simon Parker,
Yacine Belghitar and Tim Barmby is published in the March 2005 Economic Journal. The
research was supported by the Economic and Social Research Council.
Simon Parker is Professor of Economics and Entrepreneurship at Durham University
Business School.
Yacine Belghitar is at the Middlesex University Business School.
Tim Barmby is at the University of Aberdeen Business School.
For Further Information: contact Simon Parker on 0191-334-5146 (email:
s.c.parker@durham.ac.uk); or RES Media Consultant Romesh Vaitilingam on 0117-983-
9770 or 07768-661095 (email: romesh@compuserve.com).