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Ian Brinkley
Economic Advisor
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Ian Brinkley

New figures on Zero Hours Contracts produce more heat than light

Authors: Ian Brinkley

26 February 2015

Another set of statistics from the Office for National Statistics on the number of zero hours contracts has prompted the usual public debate as zero hours contracts continue in their role as symbol of everything that has gone wrong in the UK labour market. 

In looking at any change in the labour market it is useful to know three things – the level, the rate of change, and why people are doing it.  With zero hours contracts we are struggling to get answers to any of these questions.

Take the level. The latest figure from Labour Force Survey of individuals gives 697,000 for October-December 2018. The ONS also now reports on the number of people who employers say are on “contracts that do not guarantee hours of work” (which we might shorten to casual employment) and who worked in the two weeks before the survey.  The latest figure is 1.8 million for August 2014.

These are two different measures so we might expect them to vary, for example the employer measure will double count people with more than one zero hour contract. But another important reason is that many contracts do not say they are zero hours, a term which has no legal meaning, and so some people will not realise they are on them.  The 1.8 million figure is therefore probably a better indicator of the level. However, this figure excludes people who did not work at the time of the survey, and the ONS has said that at some point it will be revising the figure to try and take some of these individuals into account. So expect even bigger numbers in the future.

So what about the trend? The best we can say is that it is going up. Despite the confidence of some reports that zero hours had gone up by 110,000 over the year to October-December by the Labour Force Survey measure, the ONS is clear that they cannot distinguish between rises because of better reporting and a genuine increase. The ONS analysis shows that 45 per cent of the increase was for people who had been in work for at least a year: these were not therefore “new” contracts, but could include some people moving from a regular to a zero hours contract in the same job.

The business survey measure is even less helpful because there are so far only two observations and we will need to wait for the estimate for January 2015 before we can compare with the same quarter in 2014. In the past the LFS measure has shown significant seasonal fluctuations, and the business survey shows exactly the same characteristic.  The business survey measure gave 1.4 million in January 2014 and 1.8 million in August 2014.

We do not know from the ONS statistics why people are taking zero hours contracts (or why employers are using them) because neither the Labour Force Survey nor the business survey asks the question. We instead have to rely on ad-hoc surveys.  A CIPD survey in 2013 found that nearly 50 per cent of respondents said they were satisfied with a zero hours contract, nearly 30 per cent were dissatisfied, and just under 25 per cent were neither. 

A survey undertaken for UKCES in 2014 found that 33 per cent of people on zero hours contracts said they took such a contract because they could not find a job with regular hours. The latter question is very similar to that asked in the Labour Force Survey for temporary work and part time work. Latest figures show that 34 per cent of temporary employees said they took a temporary job because no permanent jobs were available, and 16 per cent of those in part time work (employees and self-employed) said they worked part time because they could not find full time work.  So if we take the survey responses at face value, the incidence of involuntary zero hours working looks similar to temporary work. The latter is highly cyclical, going up in recessions and the early stages of recovery before slowly falling back towards pre-recession levels. We do not know if zero hours working is following this trend, though it is plausible.

We are just not very well informed by the growth of atypical and casual work around the margins of the labour market. The boundaries between permanent and temporary work are blurred, with overlapping categories between temporary, zero hour and other casual labour contracts for employees.  We know even less about how self-employment is changing, with the simultaneous rise of professional freelancers and more people engaging in low income marginal activities.  As the Labour Force Survey does not ask why people enter self-employment, we are again reliant on ad hoc surveys which are seldom comparable.  

Having better and more consistent measures of why people are entering some forms of employment is important, as the strongest argument for more policy intervention is that people are being forced into exploitative employment contracts. Moreover, if more people are entering contingent employment it may have other implications – for example, will the national training effort be weakened?

At the moment we have a partial evidence base which can only be resolved by adding some relevant questions to the LFS.  This is not a panacea – the current LFS responses on why people take temporary work lack nuance – but it is better than what we have. Alternatively, a special module focused on atypical and contingent working could be undertaken, as the US Bureau of Labor Statistics does from time to time. Otherwise, the debate about zero hours contracts will continue to generate more heat than light.