Self-employed workers deserve social benefits

July 11, 2008

In Canada, about 2.5 million people (approximately 15 per cent of the labour force) are classified as "self-employed." Nova Scotia has about 31,000 (12 per cent.) Trend lines show the proportion of such workers has risen steadily in the past three decades, with some spikes in bad economic times.

It’s popular to think that, unlike mere employees, these people are independent "capitalists" and "entrepreneurs." They are boldly and gladly building their small businesses. They are the "backbone of the economy," highly productive as they seek to design, create, service or consult on a better mousetrap.

But Canadian research shows the truth can be quite different.

Compared to paid employees, self-employed people work longer hours; have little access to crucial social benefits (either state-mandated or employer-provided) and can be left destitute if they fall ill, get injured, lose jobs or retire; have no legal right to join a union and obligate their opposite parties (clients or employers) to negotiate collectively. Many of these workers are women.

Many are reluctantly self-employed — and crave a paid job.

On the whole, they are less productive than employees. Very simply, most lack the capital investment needed to work efficiently. Indeed, their proliferation is a key contributor to Canada’s productivity problems.

And many, far from being independent, work in conditions of subordination and dependency, relying for their livelihood upon a "boss" who exploits them and determines the pace and process of their work, often more intensely than for employees.

Companies like to use the self-employed because it gives them greater labour flexibility. This may well be short-sighted. And many of the self-employed like lowering their income taxes by deducting job-related expenses from income. That’s only a plus if you make considerably more than you could as an employee and, on average, that’s not the case. Some self-employed also value an illusory sense of independence.

Canada usually distinguishes between two categories of self-employment: the own-account self-employed who work by themselves; and those who employ others (employers). But this can hide a more useful distinction. At one end of a continuum are the independent self-employed. They have a greater number of clients, greater control over their fees and considerable autonomy over time and work methods. At the other end are the dependent, who are economically and personally tied to one client, with little control over fees and their work processes. Canada doesn’t keep such figures but European research suggests that the dependent self-employed are considerably more numerous than the independent.

Long ago, industrial societies decided that employees needed state protection above what employers would offer voluntarily. In the 1880s, 20 years ahead of its British competitors, Germany, under Bismarck, established the first insurance programs for workplace accidents, unemployment, disability and retirement, a safety net against catastrophic loss of income. The motivation was not only humanitarianism, but very hard-headed reasons of productivity and efficiency, national competitiveness and forestalling the rise of socialism.

If we are no less humanitarian than Bismarck and just as concerned with national productivity, why do we not offer similar protections to our self-employed? Part of it has to do with the mental distinction we continue to make between entrepreneurs (who, we assume, can fend for themselves) and employees (who need our protection). In fact, if we think self-employment is a good thing, then the dependent self-employed need our protection precisely to better fend for themselves, to rise from the low-income, low-productivity exploitive slough that is too often their lot.

How might we do this?

A first step would be to make the self-employed just as eligible for social benefits, like employment insurance, workers’ compensation and public pensions, as their employed counterparts. Quebec and some European countries have such programs. A few of these benefits are accessible in other Canadian provinces, but the self-employed are punished with double the premiums that employees pay. Legislation outlawing discrimination based on employment status would help greatly.

Another initiative would legally protect the choice of the self-employed to join in associations for collective bargaining purposes and legally oblige groups of purchasers of their goods or services to negotiate a fee schedule with them. Such bargaining is not uncommon on a voluntary basis (physicians regularly negotiate fee schedules with governments.) But two Canadian jurisdictions (Quebec and the federal) have also passed laws that give self-employed workers in the arts the right to “emulate” collective-bargaining.

A final suggestion would turn the traditional way we look at social protection on its head. Most of our social benefits take the form of insurance against risk of catastrophic loss of income from employment. But standard employment is fast becoming a notion of the past. The concept of social drawing rights, now being discussed seriously in the European Union, would take part of the surplus wealth generated through work and distribute it based not upon the myriad hierarchical divisions of employment, but simply on one’s status as a human being living in a country.

Larry Haiven, Phd, is associate professor in the Department of Management., Sobey School of Business, Saint Mary's University and a research associate of the Canadian Centre of Policy Alternatives in Nova Scotia. He is also national board member for CCPA.

A slightly modified version of this publication appeared in The Chronicle Herald on July 11, 2008 in Taking Care of Business, a monthly column created by the Sobey School of Business.