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Pay and Self-Employment Crisis Impoverishes as Unemployment Falls

13/06/2014 13:29 BST | Updated 11/08/2014 10:59 BST

The rate of unemployment fell from 6.8% to 6.6% in the last three months, leading to government rejoicing.

A rise too in the number of people in work - up 345,000 compared to the previous three months - looks good on the face of it.

But there are some huge problems in the latest Office for National Statistics figures - and some are getting worse even as the coalition boasts about the strength of its 'recovery'.

Wages are losing value quickly, with a 0.7% reported rise actually making most people poorer when you account for the fact that prices are going up by 1.8% each year, and even more if housing costs are included.

This is a big drop compared with recent figures, and means it is less likely that unemployed people will be able to afford to take work even if it is offered to them.

Work and Pensions secretary Iain Duncan Smith talks of wanting to 'make work pay', but he only understands the approach of the stick, making benefits ever more unliveable through decreasing their value and whipping them away with little justification through sanctions.

The carrot - introducing the living wage would be a good start - is absent from his thinking.

He must be aware that, despite the number of vacancies increasing to 637,000 in the last quarter, still around four people chase each job.

Smith can sanction as much as he likes on the basis that the unemployed are not doing enough to look for work, but even if they all do 90-hour jobsearch weeks only a fraction will be able to get work at any one time.

The other issue that continues to hurt the workless is self-employment.

Some would like to pretend that Britain is in the grip of an 'entrepreneurial revolution', and in the last year 337,000 have started working for themselves compared to 457,000 who got paid jobs.

The big problem is that there has been a huge drop in the earnings of self-employed people over the last decade, suggesting that few viable businesses are being created.

These earnings fell to an average of just £10,400 (at 2011 prices) between 2000 and 2012, well below the £13,125 someone on the minimum wage can expect for a year's work.

James Plunkett, director of policy at the Resolution Foundation, says "The worry is that these aren't budding entrepreneurs, but people taking on insecure odd jobs to make ends meet."

As we have written before on UnemployedNet, the swathes of public sector redundancies instituted by the coalition are driving many self-employment registrations.

Some of those who have worked for the state can struggle to get work in the private sector, and the thousands who have been laid off in each area then find themselves chasing the same jobs.

One refuge in this situation is to set up a small company or register as self-employed, and to try to sell your services in the open market, which in practice often means back to your previous employers.

The fly in this ointment is twofold: many others are trying to do the same thing at the same time, and many local authorities and other public bodies have a ban on employing consultants and other external suppliers while laying people off.

The continuation of redundancies in the public sector over the next few years is likely to entrench this cycle; more self-employed people chasing work which barely exists.

There are other problems with including this status in the official count of jobs.

We covered a story last year which showed advisors on the government's Work Programme were pushing unemployed people into self-employment as a way of claiming payments.

The companies delivering this scheme get paid the same for getting a participant into self-employment as they do for getting them into a paid job, leading some to suggest that this route is being exploited.

Today's unemployment figures cover a multitude of sins.