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Ian Brinkley
Economic Advisor
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Ian Brinkley

Zero Hours – The new figures and what they (might) mean

Authors: Ian Brinkley Senior Economic Advisor

10 September 2015

The new figures from the Labour Force Survey on zero hours contracts have once again provoked strong reactions in some quarters because they appear to show a huge leap in the number of such contracts. We can expect them to feature prominently in the debates at the annual TUC Congress and some of the national party political conferences on the implications for UK employment policies over the next few weeks. For some they are another indicator of the growth of insecure and exploitative employment within the UK labour market. However, we have two sets of figures – and they show rather different trends. The first comes from a new business survey introduced by the ONS in 2014 and the second comes from the Labour Force Survey, a household survey of individuals.

The new business survey show a modest increase  in what the ONS rather clumsily calls “contracts that do not guarantee a minimum number of hours” (NGHCs) between January 2015 and January 2014 of about 6 per cent. The ONS says this is not statistically significant. The ONS also finds a small decline in the share of businesses which use them, from 13 to 11 per cent. So the underlying picture from these measures is no change.

The ONS notes that the previous survey, in August 2014, found 1.8 million such contracts compared with 1.4 million in January 2014 and 1.5 million in January 2015 but the August and January totals cannot be directly compared because there is likely to be a strong seasonal element. In contrast, the Labour Force Survey estimates which rely on individual responses show a huge increase of 19 per cent comparing April-June 2015 with April-June 2014.

So which is right? They are of course different surveys with different definitions so it is not too surprising that at times they are going to diverge. However, my assessment is that the business survey – while not perfect - gives a more reliable estimate of both the level and trend on zero hours contracts.

This is because some people responding to the LFS are not aware they are on a zero hour contract - it is not a legal term and many contracts will not mention the phrase zero hours. Roughly speaking, the number of contracts issued by employers which do not guarantee hours is twice as large as the number of people reporting they are on a zero hours contracts. In recent years growing awareness has distorted the figures, so that only some of the reported increase in zero hour contracts from the Labour Force Survey represents an increase in actual use. The ONS has been consistently clear on this point and makes it again in relation to the latest set of numbers. Unfortunately, there is no accurate way of estimating how much of the reported increase from the Labour Force Survey is due to increased awareness.

When we look at recent job creation the picture is more encouraging. Over the past year (April June 2014 to April June 2015) all of the net increase in employment was accounted for by permanent employee jobs and virtually all of these were full time. Indeed, over the past twenty years the share of permanent employee jobs in the UK labour market has changed very little, with a modest rise in the share of self-employment balanced by a modest fall in the share of temporary employees.

However, zero hour contracts cut across some of the familiar definitions and associations, as a significant number are described by their holders as permanent and a surprisingly large share – nearly 20 per cent - have been held for more than five years. This longevity is ambiguous – it could be an indicator that some people are content with such contracts, but it could also reflect some people trapped in longer term insecurity.

We still do not have the critical question in either the business survey of NGHCs or the Labour Force  Survey which asks why people have taken zero-hours contracts – is it out of choice because of the desire for more individual flexibility or because nothing else was available or because some people – especially the young – do not expect anything better?  Some organisations such as the CIPD and the UKCES have commendably tried to fill the gap with one-off surveys which confirm that as many people like them as hate them.

We have some indirect measures from the Labour Force Survey which give some idea of people’s satisfaction with zero hours. A much higher share of people on zero hours wanted more hours than people in regular employment (40 per cent and 12 per cent respectively). In the week of the survey about 15 per cent of zero hour contract holders did no work compared with 9 per cent of those in regular jobs. People on zero hours were also much more likely to want a new job (22 per cent) than those in regular employment (6 per cent). However, while these are significant numbers they are still a minority of those on zero hours - 60 per cent of zero hour contract holders did not want more hours and nearly 80 per cent were not seeking a new job. These answers nonetheless confirm the polarised nature of zero hour employment.

However, we cannot read too much into some of these numbers either way. For example, people may not be seeking a new job because they think there are no regular employment opportunities available while some will want a new job for other reasons than it being zero hours. The figures for those without work include those who were sick or on holiday and also those zero hours workers who refused work in the survey week as well as those who were offered none by their employers.

Zero hours contracts are held disproportionately by the young (under 25) and older workers (50 or more) – nearly 60 per cent fell into these two age groups in April-June 2015. From this we might infer they provide more flexibility for some people starting or ending their labour market careers. However, it is just as plausible to argue that for many they are the only employment on offer for those with low skills or less experience in low pay sectors.  Just under 33 per cent of zero hours contracts are for unskilled occupations and another 30 per cent are in care, sales, and other low pay jobs. Women are also more likely to be on a zero hour contract than men, but the difference could just as easily be explained by the concentration of zero hours in areas such as care and hospitality as a desire for greater flexibility by women with caring responsibilities.

The truth is that despite the significant improvements made by the ONS in measuring zero hours contracts, we are still struggling to get a full picture of what is happening in the margins of the UK labour market and why. Until we do, the debates will continue about how many people are on zero hours contracts, how fast the numbers are growing, and how much of that growth represents a welcome increase in individual flexibility or an entirely unwelcome increase in exploitative work.