Increase in self-employment

There is a report showing there has been a rapid rise in self-employment in the UK since the 2008 Financial Crisis. However, a similar phenomenon also occurs in China, more and more people in China are considering opening up their own businesses, but the reason behind increasing interests in establishing own businesses are different from the incentives to become self-employed in the UK. In the UK, the major incentive to be self-employed is due to the concerns of tax efficiency. The UK income tax has been high; however, if setting a limited company, the income could be paid as dividends rather than salary, this would reduce the amount of tax paid to the government. On the other hand, in China, the reasons for increasing interests in starting up own businesses are two sides: one is the opportunity, the other is high expected returns. Many Chinese people feel there are many opportunities existing in the market which allow they can open their business. In addition, many Chinese people find if they choose a right field to open their businesses, they are very likely to earn much wealth, even if their businesses are not so profitable, as long as their businesses are able to match the needs of the typhoons (such as Alibaba, Tencent) in the market, they can still earn lots of money when their businesses are acquired by the typhoons. 

When there is an increase in self-employment in the economy, it can lead to the following consequences. Firstly, if the economy has a tax system like the UK tax system, when there is an increase in self-employment in the economy, the government tax income will decrease. When the government tax income decreases, the future government expenditures may decrease as well. Secondly, an increase in self-employment can lead to an increase in innovation. When people want to open up their businesses, especially if they expect to open businesses that can generate enormous profits that can shift up their economic and social status, they have to find an empty field to avoid direct competitions with existing firms and gain monopolistic power as well as profits. Thirdly, it may cause a slowing down improvement of productivity in the economy. When the self-employed population increases in its proportion in the entire population, the available labours for companies may decrease. This may reduce the average size of companies in the economy. When the average size decreases, the benefits gained from economies of scale may drop. Fourthly, it may increase the wealth gap within the society. The people with advantageous backgrounds are more likely to succeed as they have access to knowledge (many studies have already found that individuals’ education is closely correlated with their social backgrounds), sufficient funds, and right people (networking is also important) than those with disadvantageous backgrounds. 

To conclude, when there is an increase in self-employment, it can add more catalysts stimulate growth and innovation in the economy; however, it also has social costs, so governments should pay attention at this issue and design appropriate policies to tackle this problem.