U.K. Self-Employment Surge May Not Mean Greater Level of Slack

A surge in self-employment in the U.K. may not indicate a greater-than-estimated level of slack in the economy, according to the Bank of England.

In a research paper published Thursday, BOE economist Srdan Tatomir said a “large part” of the increase since 2008 reflects trends that began before the recession, such as an aging workforce and a rise in female self-employment.

“To the extent that self-employment increases are mostly due to structural factors, this is not likely to represent additional slack above what is incorporated in bank staff estimates of spare capacity within the labor market,” Tatomir said in the paper.

In its February Inflation Report, the MPC said its central view was that slack in the economy had narrowed over the previous quarter to about 0.5 percent of GDP.

The level of spare capacity has been a key consideration for Governor Mark Carney and members of the Monetary Policy Committee as they assess labor-market tightness and inflation pressures to determine when to begin interest-rate increases. One debating point for policy makers last year was how much self-employment represented a form of labor-market slack.

MPC member Ian McCafferty said on Tuesday that the risks around the BOE’s estimate of slack are “probably skewed to the downside, suggesting that there may be less spare capacity left in the labor market.”

About 4.6 million people, or 15 percent of all U.K. workers, were self-employed in 2014, according to official data. That’s up from 3.9 million, or 13 percent, in 2008.

Long-term trends “can explain much of the increase,” Tatomir said. “Less of the increase, therefore, seems likely to relate directly to the cyclical state of the economy, including the possibility that some of the increase in self-employment really represents hidden unemployment.”

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