Tuesday, 17 June 2014

'Sharing': Self Employment and the Grey Economy

by Henry Thornton: http://www.henrythornton.com/blog.asp?blog_id=2787

English: Bike sharing system in Toronto
Bike sharing system in Toronto (Wikipedia)
There is a new way of doing business in the UK.

This is called 'sharing' - people my rent out a room, or their house, or call a non-cabbie car hire network, or rent a dress if they are a gorgeous young thing with a big date and a low budget. 

Phillip Inman of the Guardian wrote yesterday about this development, and Henry cannot wait for it to get to Australia.

It could be called monopoly busting, whether the monopoly is the taxi companies, who are unreliable, or the golden legion of real estate agents, or the department stores who extract massive profits from selling nice dresses to poor but attractive young women.

Naturally, there new economy forces are being fought by the pld economy monopolists in the UK, and no doubt the monopolists in Australia are watching and readying themselves for battle.

Elderly British survey fillers are against the new economy development already described, but younger Britains are more likely to embrace the idea.

Phillip Inman explains the economics behind this movement: 'This rising tide of self-employment accounts for two out of five jobs created in the past year, pushing the number of people who work for themselves to one in seven of the workforce. While many will be self-employed out of necessity and earning, on average, about 40% less than their employed counterparts, a sizeable proportion consider themselves entrepreneurs and are excited about being their own boss'.

'Analysis by the Royal Society of Arts shows that for every worker who loses out there are three who say they benefit. It is an entrepreneurialism that the RSA argued is indicative of an unstoppable shift'.

'Respondents [to a major survey] cited factors such as being able to live where they want and work around caring for older relatives or children. The rising cost of childcare was a key consideration, as was the escalating cost of commuting'.

Largely unspoken was the lack of pay, wage rises and decent pensions on offer in mainstream jobs culture.

'The tax system also encourages workers to look beyond the workplace for extra income. A combination of income tax and national insurance places a 32% marginal tax rate on standard rate taxpayers. Capital gains tax by contrast charges the basic rate taxpayer a rate of 18%, and a higher-rate taxpayer 28%. As such, gains on wealth are more lightly taxed  than earned income'.

Henry notes that an effective tax rate on conventional paid employment of 32% perfectly explains why people will accept 40% lower incomes in the self-employed sector - most of the self-employed income is from the black/gray economy and therefore effectively untaxed.

Henry knows of many young Australians with fine education, positive attitudes and no jobs in the standard economy or poorly paid jobs with little prospect of advancement. Crime is one solution for these kids, but being self-employed is the logical alternative.

In the UK, a peer of the realm, Lord Young, is reporting on this phenomenon and pressuring the government to relax rules that support the monopoly positions of entrenched enterprises like the London cabbies. One hopes that Maurice Newman can find the courage to address these issues as they affect Australia's struggling manufacturing economy.

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