- Centre for Enterprise and Entrepreneurship Studies
Earlier in 2021, the Scottish government launched its Fair Work action plan. The focus is to make Scotland “the best place to live, work, invest and do business”. It is a bold and noble ideal. The focus of the plan is on employers and organisations who can implement the recommendations included in the action plan, for example, paying the Living Wage and reducing the gender pay gap. These are important steps. However, whilst the Fair Work vision is applicable to businesses (in their role as employers for instance), there remains a gap: new business start-up/self-employment.
Self-employment across the UK has risen sharply in the past two decades. Figures from the Office for National Statistics show that despite increases in participation, average income levels from self-employment have fallen by 22% since 2008/09. Furthermore, Scottish research indicates that many self-employed business owners operate in poverty (what is referred to as “in-work poverty”). For example, research indicates that rates of poverty for the self-employed are the highest of any employed group: 24% of self-employed couples with dependent children are in relative poverty (achieving 60% of median income - £243 per week) and 17% are in severe poverty whereas only 4% and 2% respectively of employed couples with dependent children are.
Additional research shows that business creation (creating and developing your own start-up) is undertaken often as a means to meet multiple, and potentially, conflicting needs. For example, the need to balance income generation with caring responsibilities or challenging health conditions or disabilities.
Most pertinently, findings also indicate that the businesses created by these respondents were in highly competitive sectors and frequently did not meet the financial needs of the owners. Running the business was often costing the owner more than they would or could make from the business. This would suggest that (much) self-employment in Scotland is not currently providing an environment for inclusive economic growth, a sustainable livelihood, and a context of Fair Work.
Specifically with regards to the Fair Work action plan, in order to win business, especially in highly competitive sectors, it is usually imperative for the business model to compete on price. Especially in self-employment, there are no minimum wage requirements – the requirement is often how low can you go. This means that nascent business start-ups are engaging in self-exploitation as they try to get their business off the ground and often throughout business operation.
In the beginning, this might seem sustainable, but without a plan to move away from self-exploitation to a more sustainable business model which will meet the financial (and other) needs of the owner, the business will either fail, the owner will continue to over-invest (time and money), or the owner will seek outside financial support in the form of subsidies (eg social security benefits).
Importantly, research examining low-income entrepreneurship also found a lack of engagement by the start-up owners with (formal) business support and advice services. Overcoming the gap in accessing support and advice could be the key to resolving business start-ups that don’t pay themselves the Living Wage, and thus do not adhere to the Scottish government’s aspirations for Fair Work.
Given that entrepreneurship and self-employment are positioned as a route to employment and to drive recovery, and arguably out of poverty through financial reward, especially considering a post-Brexit and post-Covid world, it is important to provide business start-ups and their owners with the best possible chance of engaging in ‘Fair Work’.
As poverty entrepreneurship is likely to affect many of the one in five people who live in poverty in Scotland, addressing business support and advice specifically for business start-ups to integrate Fair Work principles, will provide an initial step towards potentially relieving the strain of this on both individual and state.
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