Impact of the Pandemic on Self-employment Dynamics in the UK

The dramatic reduction of the numbers of small businesses and self-employed individuals in the UK and other countries such as the USA during the COVID-19 pandemic, has raised concerns internationally about the sustainable growth of the small business sector. This paper provides a longitudinal perspective on self-employment entries and exists before, during and after the COVID-19 pandemic using data for the UK. This allows investigation of whether and how the dynamics of self-employment have changed and discussion of the implications for the small business sector.

Applicability to the conference theme – ‘Sustainable Growth in Unexpected Places’:
Sustainable small business growth includes societal issues of inclusivity and equality. Self-employment and entrepreneurship research have long studied and debated the importance of the social dimensions for self-employment and small businesses alongside economic factors. This debate has highlighted social inequalities in business start-ups and self-employment duration and exits with respect to socio-demographic characteristics of the owner such as gender and ethnicity. This paper includes in its empirical analysis regions as an important dimension of ‘place’ for self-employment.

Aim:
The overall aim of this paper is to investigate whether and how the factors associated with self-employment entry and exit have changed during and shortly after the COVID-19 pandemic compared to before the pandemic. Within this overall aim, the paper will focus on how gender, ethnicity, age and health are related with self-employment dynamics over this turbulent period of time.

Methodology
Longitudinal data from the UK Labour Force Survey (LFS) are used for this research. Five-quarterly longitudinal datasets are pooled covering 2017-2019 (pre-COVID) and 2020-2022 (pandemic and shortly after). Probit models are run for self-employment entries and exits and changes due to the COVID-19 pandemic are directly tested using interaction terms.

Contribution
The paper contributes to research on the factors that influence the transitions into and out of self-employment. There has been an emphasis in existing research on necessity versus opportunity self-employment and differences in self-employment outcomes (e.g. duration) by whether individuals entered from unemployment (‘necessity’) or paid employment (‘opportunity’). This study instead widens the view to include economic inactivity. This paper also contributes to research on the impact of economic shocks and the business cycle on self-employment and small business ventures. Prior research has tended to investigate the self-employment stock. Analysis of entry and exit instead tell us more about the processes/dynamics.

Implications for policy
Findings suggest an increased importance of health for self-employment dynamics. This is an area that has been less considered in relation to self-employment and small business policies. Such policies have been primarily concerned with industry sectors. Our findings suggest that poor health may increase the vulnerabilities of self-employment that have remained uncovered. Equally, current policy thinking about labour shortage may be too limited as it has not considered the self-employed.