Why do we need self-employed persons?
The 159th mBank-CASE seminar was dedicated to the question of self-employment. The conventional wisdom is that Poland supports self-employment with a system of preferences, which pushes workers into self-employment. The speakers focused on systemic preferences for the self-employed and attempted to find the reason for it, and to examine the situation in Poland in comparison with other countries.
The presentation by Dr. Jarek Neneman (Lazarski University and CASE) focused on the seminar’s somewhat controversial title, specifically on the question: Why do we need the self-employed? But this very broad subject was narrowed down mainly to economic questions, in particular the system of public levies. To begin, he defined the self-employed as those conducting their own business activity – but in Poland, as in certain other countries, there is no uniform definition of business activity. However, there is agreement that it means activity carried out: 1) in the person’s own name; 2) on their own account; 3) at their own risk. First Dr. Neneman discussed the pluses and minuses of self-employment from the perspective of the self-employed and the employer, pointing out that the benefits, including systemic ones (taxes and mandatory contributions) outweigh the negatives.
The literature contains arguments for the systemic support of entrepreneurs as those who take on risk and deliver innovation. Dr. Neneman took a critical stance toward some of these arguments, but the basic problem he pointed out is the difficulty of distinguishing entrepreneurs – those who take on risk and create innovation – from those who are simply self-employed, who often provide services for a single entity without taking on any risk, and whose self-employment is purely a result of taxation preferences.
Next, in a series of charts based on tax data, he showed the significance of self-employment in Poland, including how people move between various forms of taxation to minimize their tax burden.
Dr. hab. Adam Adamczyk (University of Szczecin) presented the tax and contribution burden on the self-employed in Poland against the backdrop of selected EU countries. In his presentation he concentrated on gauging the profitability of self-employment in relation to salaried work, comparing the size of payments to the state depending on the level of labor costs. The mandatory contribution burdens may be regressive (e.g. Poland and Croatia), linear (e.g. Italy) or progressive, though in this case we can speak more of progressive-regressive systems (Germany). In the case of income taxation, the systems of various countries differ by their degree of progressivity.
Examining both taxes and mandatory contributions is necessary to show the actual preferences for the self-employed. Dr. Adamczyk distinguished between systems that prefer self-employment at all income levels (e.g. the UK, Denmark and Germany), prefer it above a certain income level (Poland, Belgium, the Czech Republic) and those that prefer employment at all income levels (Slovakia, Sweden, Hungary). Next, the picture was rounded out with social transfers. In summing up, Dr. Adamczyk stated that the Polish tax and contribution system is strongly regressive, and prefers the self-employment of people with high incomes.
In the third part of the seminar, Dr. Adamczyk delivered a presentation prepared by Dr. hab. Leszek Morawski (Institute of Economics, Polish Academy of Sciences), who was unable to attend due to illness. The basic question was the influence of fiscal burdens and transfers on the choice of form of employment. The share of the self-employed in the total number of employed in Poland is above the European average. But when this indicator is corrected for farmers, the relationship is significantly lower. Next, the author discussed in detail who the self-employed are in Poland, pointing to factors including the higher share of people with higher education among the young, and of those with basic education among the old. Women are also predominant among the young.
Next, the speaker presented the EUROMOD simulation model and showed several of its potential applications. He concluded with a critical review of the literature on the justification for supporting self-employment, pointing to a range of problems (e.g. low investment by the self-employed, and an ineffective support system), which raises questions about whether it makes sense to support self-employment.
Topics during the discussion included the scale of fictitious self-employment in Poland. There was also an interesting theme of behavioral economics related to preferences for the self-employed who are beginning their businesses, as it has been observed that they get used to the preferences and expect them to be extended automatically. But the greatest interest was aroused by the strong preference for the high-earning self-employed and the need to introduce greater neutrality of the tax and contribution system from the point of view of choice of employment form. The idea of a uniform levy was addressed, and there was discussion about how to carry out this desirable reform.