Blog Post

COVID-19: The self-employed are hardest hit and least supported

Self-employed workers are hardest-hit by COVID-19 lockdowns. Yet they often receive less government support than salaried employees. Is the disparity justified?

By: and Date: April 8, 2020 Topic: Macroeconomic policy

Government support packages to help workers endure the disruptions caused by COVID-19 are ostensibly generous but often discriminatory. In many countries, self-employed workers receive less support than salaried employees. In the Netherlands, for example, a worker who usually earns €3,000/month receives €1,200 less in COVID-19 support if she is self-employed. Are there good reasons for this unequal assistance?

Self-employed workers are hardest-hit by COVID-19

The self-employed represent 14% of the EU workforce (Eurostat, 2018). They work disproportionately in the sectors hardest-hit by the lockdown: 44% of self-employed workers versus 37% of employees (Figure 1).

The uneven distribution shown by Figure 1 is particularly worrying because most self-employed workers are financially worse off than employees. The median self-employed worker earns 18% less than the median employee (equivalised net disposable income, Eurostat 2018)[1].

A significant share of the self-employed is at the extreme end of financial fragility, though some self-employed workers command very high earnings. In the language of economists, the self-employed are over-represented in both the upper tail and the lower tail of the income distribution (Schneck 2018, Astebro et al 2011, and IFS). A quarter of all self-employed workers in Europe are in situations characterised by economic dependence, low levels of autonomy and financial vulnerability (Eurofound, 2017)[2]. European self-employed workers are twice as likely as employees to suffer from poverty and social exclusion[3] – social ills that threaten over a quarter of the self-employed in some countries (Eurostat 2018, Eurofound 2017)[4].

Gaps in social protection coverage add to the financial vulnerability. Self-employed workers are especially exposed to sudden drops in earnings. In eight EU countries, including Belgium, France and Italy, the self-employed are barred from one or more of the insurance-based schemes that are mandatory for salaried employees (European Commission, 2017). In these countries, self-employed workers are excluded from certain social insurance programmes, such as sickness, unemployment and/or occupational injury.[5]

Even in countries where the self-employed can access social insurance programmes, they might be under-protected in practice (European Commission, 2017). Eligibility conditions and income assessments can be such that self-employed workers receive lower benefits and for shorter periods than employees[6].

Measures adopted to support self-employed workers

In Europe and elsewhere, fiscal measures have been rolled-out quickly to support the self-employed through the COVID-19 epidemic. Table 1 shows the measures adopted in seven EU countries, the United Kingdom and the United States. The analysis focuses on measures aimed at replacing the lost earnings of individuals. It does not include measures to protect small businesses from bankruptcy (eg liquidity injections through grants or government-guaranteed loans). The analysis also excludes programmes that support individuals regardless of employment status, such as food and housing subsidies.

Table 1 shows the various measures as income replacement rates, as a means to compare the support for median self-employed workers and employees. Income replacement rates are out-of-work income received as a share of in-work income.

Table 1: Income support schemes for self-employed (SE) workers and employees affected by the COVID-19 crisis

Four types of income-support scheme emerge from Table 1: one-off grants (in grey in Table 1), fixed monthly payments (in blue), percentage-based income replacement schemes (in green), and unemployment benefit programmes extended to self-employed workers (in red).

Comparing the measures

Are employees and the self-employed getting the same deal? This question can be answered in relation to administrative costs, frequency of payments and replacement rates.

In all of the European countries under study, businesses and self-employed workers must prove that their earnings have been negatively affected by the coronavirus to access rescue funds.[7] This requirement entails administrative costs. While these are borne by employers in the case of salaried workers, self-employed workers must expend their own time and resources and are thus disadvantaged.

In terms of frequency, recurring payments are clearly preferable to one-off grants. One-off payments do little to reduce the uncertainty that plagues households in times of crisis: will it be possible to make ongoing payments? Yet, in France and Italy, self-employed workers have been offered one-off grants, while employees receive monthly support. This puts self-employed workers under much more severe stress than their salaried counterparts.

Finally, when it comes to replacement rates, most self-employed workers get an equal or worse deal than employees. Two groups of countries emerge.

The first group includes all countries that adopted percentage-based income replacement schemes or extended unemployment insurance (in green and red in Table 1). In these countries, replacement rates are the same for the employed and self-employed (eg in Spain, all workers receive 70% of their monthly income).

The second group includes the countries that offer one-off grants and those that provide fixed monthly payments (in grey and blue in Table 1). Income replacement schemes in this group are distributionally blind: self-employed workers receive the same fixed sum whether they usually earn €1,200 or €3,000. Those earning higher incomes are therefore disadvantaged compared to employees in the same income bracket. In the Netherlands for example, a discharged dancer who typically earns €3,000 will receive €2,700 this March if she is salaried, but only €1,500 if she is self-employed. Conversely, those in the lower income bracket get a better deal if they are self-employed (eg self-employed workers earning less than €1,667 in the Netherlands).

Table 2: Summary comparison of income support schemes for self-employed workers and employees affected by the COVID-19 crisis (a)

In most countries, therefore, employees and the self-employed are receiving unequal support (Table 2). Is it simply fiscally and politically impossible to level the playing field — fairness might involve higher taxes or lower replacement rates for salaried workers, who represent the majority of the electorate — or are there good reasons for this unequal assistance?

There are plausible arguments in favour of smaller bail-outs for the self-employed – arguments related to moral hazard, unequal tax contributions and all of the reasons advanced to justify excluding self-employed workers from social unemployment insurance. On moral hazard, for instance, it could be argued that self-employed workers should assume the downside risks of their activity, since they knowingly forgo financial security for the sake of flexibility and autonomy.

In this crisis however, one argument overrides all others: lockdowns are adopted for the health and safety of every individual, therefore the economic burden should fall equally on all. If my Uber driver gets sick, I get sick. Political platitudes aside, we really are ‘all in this together’. Therefore the self-employed must be entitled to equal assistance to withstand the lockdown.

Pragmatically, equal assistance means offering recurring monthly payments and income-replacement rates that account for the social-insurance gaps and higher administrative costs faced by the self-employed. But how will countries pay for the additional spending? The EU may be coming to the rescue: the Commission recently proposed a scheme that would, if adopted, help EU countries cover the costs of income replacement programmes (the so-called SURE instrument).

However funded, countries should view expenditures directed to the self-employed as an investment, not lost resources. When the crisis eases, a flexible workforce will be a great asset. A battered one will not.

References

Adam S., Miller H., Waters T. and Xu X. (2020) ‘Support for the self-employed during the coronavirus pandemic’, IFS Briefing Note BN274, IFS, available at: https://www.ifs.org.uk/uploads/Support-for-the-self-employed-during-Covid-19-BN274-.pdf

Åstebro, T., Chen, J. and Thompson, P. (2011) ‘Stars and misfits: Self-employment and labor market frictions’, Management Science, 57(11): 1999-2017

Schneck, S. (2018) ‘The Effect of Self-Employment on Income Inequality’, GLO Discussion Paper No. 281, Global Labor Organization (GLO)

Spasova, S., Bouget, D., Ghailani, D. and Vanhercke, B. (2017) ‘Access to social protection for people working on non-standard contracts and as self-employed in Europe’, A study of national policies, European Social Policy Network (ESPN)

Vermeylen, G., Wilkens, M., Biletta, I. and Fromm, A. (2017) ‘Exploring self-employment in the European Union’, Publications Office of the European Union

[1] Median equivalised net income: the median of total income of all households, after tax and other deductions, that is available for spending or saving, divided by the number of household members converted into equivalised adults; household members are equalised or made equivalent by weighting each according to their age, using the so-called modified OECD equivalence scale. The average self-employed worker earns 7% less.

[2] Self-employed workers labelled as either ‘vulnerable’ or ‘concealed’.

[3] Eurostat 2018 “People at risk of poverty or social exclusion by most frequent activity status (population aged 18 and over)”

[4] These countries are Estonia, Luxembourg, Portugal, Romania, Slovenia and Spain.

[5] The full list of countries is: Belgium, Cyprus, Greece, France, Italy, Lithuania, Latvia, Slovakia. Note that Belgium provides compulsory social insurance to cover cases of bankruptcy, the amount of which may be higher than the unemployment benefit paid to former salaried workers.

[6] Such is the case, for example, in Denmark, Estonia, Greece, and Finland for unemployment benefits, and Belgium, Bulgaria, Czech Republic, Finland, and Slovenia for sickness benefits.

[7] Though the administrative burden varies greatly across jurisdictions. See https://www.nytimes.com/2020/04/03/world/europe/coronavirus-Berlin-self-employed.html


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article Download PDF More on this topic More by this author
 

Policy Contribution

COVID-19 and the shift to remote work

The post-pandemic new normal is sure to differ both from the pre-pandemic normal and from current arrangements. Hybrid arrangements in which part of the week is spent at the office, and part at home, are likely to become the norm.

By: J. Scott Marcus Topic: Digital economy and innovation Date: June 16, 2022
Read about event More on this topic
 

Past Event

Past Event

How can we support and restructure firms hit by the COVID-19 crisis?

What are the vulnerabilities and risks in the enterprise sector and how prepared are countries to handle a large-scale restructuring of businesses?

Speakers: Ceyla Pazarbasioglu and Guntram B. Wolff Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 25, 2022
Read article More on this topic More by this author
 

Podcast

Podcast

The cost of China's dynamic zero-COVID policy

What does zero-COVID mean for both China and the global economy?

By: The Sound of Economics Topic: Global economy and trade Date: May 11, 2022
Read article Download PDF
 

Policy Contribution

European governance

Fiscal support and monetary vigilance: economic policy implications of the Russia-Ukraine war for the European Union

Policymakers must think coherently about the joint implications of their actions, from sanctions on Russia to subsidies and transfers to their own citizens, and avoid taking measures that contradict each other. This is what we try to do in this Policy Contribution, focusing on the macroeconomic aspects of relevance for Europe.

By: Olivier Blanchard and Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: April 29, 2022
Read about event More on this topic
 

Past Event

Past Event

From viruses to wars: recent disruptions to global trade and value chains

How have events in recent years impacted global trade and value chains and how can we strengthen these against future disruptions?

Speakers: Dalia Marin, Adil Mohommad and André Sapir Topic: Global economy and trade Date: April 27, 2022
Read article More on this topic More by this author
 

Opinion

China’s Covid policy to be year’s largest economic shock

Beijing’s ‘dynamic zero-Covid’ policy could devastate the domestic economy, but the effects will also be felt globally.

By: Alicia García-Herrero Topic: Global economy and trade Date: April 26, 2022
Read article
 

Opinion

European governance

How to reconcile increased green public investment needs with fiscal consolidation

The EU’s ambitious emissions reduction targets will require a major increase in green investments. This column considers options for increasing public green investment when major consolidations are needed after the fiscal support provided during the pandemic. The authors make the case for a green golden rule allowing green investment to be funded by deficits that would not count in the fiscal rules. Concerns about ‘greenwashing’ could be addressed through a narrow definition of green investments and strong institutional scrutiny, while countries with debt sustainability concerns could initially rely only on NGEU for their green investment.

By: Zsolt Darvas and Guntram B. Wolff Topic: European governance, Green economy, Macroeconomic policy Date: March 8, 2022
Read article Download PDF More on this topic
 

Blueprint

European governance

Greening Europe’s post-COVID-19 recovery

This Blueprint includes some of the Group’s most prominent voices on the different aspects of the multidimensional issue of green recovery.

By: Simone Tagliapietra, Guntram B. Wolff, Georg Zachmann, Laurence Tubiana, Laurence Boone, Antoine Dechezleprêtre, Jean Pisani-Ferry, Klaas Lenaerts, Thomas Wieser, Ottmar Edenhofer, Mirjam Kosch, Michael Pahle, Ian Parry, Robert N. Stavins, Sabine Mauderer and Tomasz Koźluk Topic: European governance Date: February 23, 2022
Read article Download PDF More on this topic
 

Policy Contribution

European governance

The failure of global public health governance: a forensic analysis

The emergence of the Omicron variant in November 2021 was a stark reminder of the high overall cost of the persistence globally of extremely unequal access to vaccines and treatments. What are the reasons for these failures of global collective action?

By: Anne Bucher, George Papaconstantinou and Jean Pisani-Ferry Topic: European governance Date: February 17, 2022
Read about event More on this topic
 

Past Event

Past Event

A debate on fiscal rules and the new monetary strategy

Presentation of the Yearbook of the Euro 2022.

Speakers: Maria Demertzis, Fernando Fernández, Gonzalo García Andrés, José Carlos García de Quevedo, Pablo Hernández de Cos and Jorge Yzaguirre Topic: European governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 17, 2022
Read article More on this topic
 

Blog Post

Venture capital: a new breath of life for European entrepreneurship?

Whether the dynamism of European venture capital of the past two years can be sustained and kick start a credible alternative to bank finance in the European Union remains to be seen.

By: Maria Demertzis and Lionel Guetta-Jeanrenaud Topic: Banking and capital markets Date: February 10, 2022
Read article More on this topic More by this author
 

Podcast

Podcast

China's human capital problem

How are industrialisation and automation affecting Chinese workers?

By: The Sound of Economics Topic: Global economy and trade Date: February 9, 2022
Load more posts