Finland: Spotlight on self-employed persons without employees
An extensive study of self-employment in Finland, the first of its kind, shows that full-time permanent employment is declining, with some workers being neither traditional wage earners nor entrepreneurs. This poses a challenge for the social security system. Some 6% of the workforce are self-employed and most say they are happy to be so.
Background and objectives of the study
Entrepreneurship and self-employment are defined in a Eurofound comparative study on self-employed workers, industrial relations and working conditions. The report for Finland that formed part of this study demonstrated that self-employment has been a key issue in Finland’s public debate about these matters. The report shows that self-employed people enjoy a higher level of freedom than employed people and have the potential to contribute to the creation of more jobs. However, trade unions are concerned about ‘forced entrepreneurship’ and also point out that self-employment is seen as a way for employers to transfer some of their risks to employees.
The self-employed are a heterogeneous group without clear definition. In legal terms, these kinds of workers can be wage-earners or entrepreneurs. It is therefore difficult to make any generalisations about their well-being or economic situation, although research shows that they mainly work alone, have insecure incomes and limited social security. In order to shed some light on this widely discussed, but little studied, phenomenon, Statistics Finland conducted a study, Self-employed in Finland 2013 (in Finnish, 3.21MB PDF). The study was commissioned by the Ministry of Social Affairs and Health and the Ministry of Employment and the Economy and it was published in October 2014.
The study first tries to find out why people become self-employed and investigates their general working conditions and well-being. It also asks whether they earn enough and whether they have access to social benefits when necessary. For the purposes of this study, the term self-employed refers to entrepreneurs without employees. It also covers freelancers, artists and researchers, whose income may come from a range of sources such as wages, scholarships, and royalties, and whose legal status in relation to the social security system remains in many ways unclear.
The study was conducted in two parts. Firstly, 11 qualitative interviews were conducted with self-employed people of both genders who represented different categories of self-employment. These interviews were used to formulate the survey questionnaire. The respondents for the survey questionnaire were selected from Statistics Finland's own Labour Force Survey (LFS). The LFS was also used to make comparisons between the self-employed and employees. The questionnaire was sent to 1,994 people of whom 1,573 responded (a response rate of 78.7%). The response rate was slightly lower among men, younger people and those with lower education. The sample was hence biased towards older people. Some 44% of respondents were aged over 50, with only 9% under 30. Only 5% were freelancers and 2% had scholarships, while the rest of the group were entrepreneurs. The survey was conducted both online and by telephone.
Reasons for becoming self-employed
Approximately 20% of the self-employed identified themselves as forced entrepreneurs and 42% of the respondents said they had become self-employed after being unable to find a paid job. The self-employed have some potential for job creation. One third of them said they could consider becoming an employer, with 12% considering hiring a person in the near future.
The main challenge for the self-employed is their vulnerable economic situation, caused by low incomes, dependence on a few customers and fluctuating incomes. In general, however, the respondents were satisfied with their situation, with 75% reporting they would rather stay self-employed than take up regular work.
Paths to self-employment
Half of the respondents said they had wanted to become self-employed, with 19% saying they had chosen to do so only because of a lack of other options. The remaining 31% fell somewhere in between those categories.
Women reported a slightly higher rate of forced entrepreneurship than men. Involuntary self-employment was most common in retail, health and knowledge work. Voluntary self-employment was most common among experts and in the service sector.
Working conditions and well-being
Working hours for the self-employed are not monitored or regulated. The self-employed work, on average, 39 hours a week (the average for employees is 36.3 hours). There is, however, a lot of variation: 25% of respondents work more than 50 hours a week, while 28% work for less than 34 hours. The longest working hours are in construction, industry and transportation, with men working more hours than women. The majority (71%) of the self-employed were satisfied with their working hours.
Not surprisingly, the self-employed report greater control than employees over their workload and working hours. Even so, the self-employed report slightly higher stress levels than employees. Among the self-employed, 19% found it difficult to bear their work stress while the corresponding rate for employees was 16%. The self-employed more frequently reported that they neglect their family life and need to work longer days. Up to 29% of the respondents had not managed to take two weeks’ vacation in the previous 12 months.
In general, the self-employed were more satisfied with their working conditions than employees. However, there was a bigger variation among the self-employed than the employed when asked about their work ability. Overall, the self-employed considered their work ability to be good but 10% of respondents reported significant problems.
Income and social security
The incomes of the self-employed are relatively low. Some 29% belong to the lowest income decile while employees are quite evenly distributed over all the deciles. Among the self-employed, 62% said their economic situation was good while 38% reported problems. However, as has been mentioned, their economic situation is vulnerable because of fluctuations in incomes and dependence upon one, or just a few, customers.
The self-employed are, in general, eligible for social benefits, but the survey shows that many of them lack knowledge about their rights. Almost half of the respondents said they had difficulty understanding what social security benefits they are eligible for. Many find the bureaucracy involved in applying for benefits so complex that they prefer not to claim. The study also reveals that many benefits, including those for sick leave and parental allowances, depend on how much insurance contributions the entrepreneur has paid. The insurance is compulsory, but the entrepreneurs can decide on the level and many tend to pay a fairly low level. The need for these contributions to be paid regularly often causes problems because of the irregularity of the entrepreneurs’ incomes. Overall, the insurance system was found to be too expensive and the benefit level too low in comparison with other workers.
Follow-up and social partners' views
The study was conducted to contribute evidence to Finland’s debate about the social security system and the barriers to entrepreneurship. There are some calls to replace the traditional social security scheme with a citizen income. This system of a basic income for all, it is argued, will remove the incentive traps which can occur when a person needs to combine social benefits and atypical forms of working.
The Ministry of Social Affairs and Health set up a tripartite working group in 2012 to investigate the challenges faced in claiming social benefits by self-employed people such as artists and those in media and communication. The working group recommended several improvements related to pensions, especially for freelancers and persons working on stipends who have limited access to the pension system. The key national union confederations, The Central Organisation of Finnish Trade Unions (SAK), The Finnish Confederation of Salaried Employees (STTK) and The Confederation of Unions for Professional and Managerial Staff in Finland (Akava) issued a joint statement (in Finnish) supporting the working group’s recommendations. This highlighted the complexity of the situation for a person who has many different statuses, such as combining entrepreneurship with employment. The unions also raised concerns about the low incomes of many self-employed people which can lead to inadequate social benefits.
The Ministry of Employment and the Economy has also set up a tripartite working group to evaluate labour market trends, and to suggest policy measures to avoid polarising the labour market and to promote equality. This ‘Trend working group’ (Trendityöryhmä) in their final report concludes that the distribution of workforce between employees and entrepreneurs has been stable since 2000 (in Finnish, 921 KB PDF). The share of entrepreneurs without employees has risen only slightly, from 4.3% in 2000 to 4.6% in 2014. The share of other self-employed, such as freelancers and people with other independent forms of occupational statuses, has risen from 0.9 % to 1.7 % in the same period. The report points to the fact that the legal definition of self-employed, which lies somewhere between entrepreneur and employee is not always clear. These new forms of work pose a challenge to labour legislation and the social security system. The working group, however, conclude that there is no need to create a new occupational status. Instead, current legislation needs to be revised to adapt to the changing structure of the labour force. The conclusions of the working group on other issues remain vague because trade unions and employers’ organisations cannot agree on how to tackle the need for enterprises to be flexible or the need for better employee security.