Zero-hours contracts: casual contracts are becoming a permanent feature of the UK economy

There is much to celebrate about the UK’s labour market performance. The employment rate is at a record high of 74.1% and every region of the UK has seen employment growth over the last two years. After a long squeeze, wages are now growing faster than prices (thanks in large part to ultra-low inflation).

The significant, and surprising, jobs growth since over the past five years is unquestionably good news. But trends including the rise in self-employment and increase in work in the on-demand economy over the same time period raise questions about whether some of this rising quantity has come at the expense of quality. Nowhere is this question more hotly debated than on the issue of zero hours contracts.

New ONS statistics on zero-hours contracts (ZHCs) published today provide an opportunity to lift the lid on their prevalence and incidence across the workforce.

The first question to ask is, how many ZHCs are there? The answer depends on the measure you use. The chart below shows two different measures of the number of ZHCs in the UK. The blue line is taken from the Labour Force Survey (LFS) and shows that there are now 801,000 workers reporting that they are on a ZHC in the UK (2.5 per cent of people in employment). This is a 15 per cent increase on the past year, an increase of 104,000.

The gold dots on the chart above shows that business surveys report a significantly higher number of ZHCs than the LFS. Today’s release shows that in November 2015 there were 1.7 million ZHCs where work was carried out in the two week survey period. The primary explanation for the difference between the figures from the business and employee surveys is that the LFS counts the number of employees on ZHCs in their main job whereas the business surveys count the total number of ZHCs and, of course, workers can hold more than one contract at a time.

As we’ve previously suggested, the evidence is mounting that ZHCs are not just a recession-related phenomenon so much as a more permanent, if still relatively small, feature of the UK jobs market.

If ZHCs are here to stay, it’s worth spending some time looking at which workers are on them. Three things are worth noting.

• First, under 25s make up the largest proportion of those on ZHCs. People aged 24 and under now account for 38 per cent of all those on ZHCs, up from 34 per cent last year. In comparison, this age group accounts for 13 per cent of overall employment. Almost two-thirds of the recent increase can be accounted for by growth in ZHCs among this age group.

• Second, over the past year regional disparities in the incidence of ZHCs have opened up. As the chart below shows, three regions – Wales, the South West and the North West – have seen the significant growth in the number of ZHCs since late 2014. The North West has seen a massive 64 per cent increase in ZHCs in the past twelve months.
  

• Third, even though ZHC workers are more likely to be part-time than full-time – by a ratio of 2:1 – the majority of the increase in ZHCs over the past twelve months has come from full-time workers. We shouldn’t read too much into this shift in composition, not least because part-time workers still account for 63 per cent of ZHCs, down slightly from 66 per cent last year. But it could be an early sign that ZHCs are becoming more mainstream, with employers using casual contracts in roles that we wouldn’t traditionally expect them to.

Zero hours contracts certainly polarise opinion. Just as for some workers these contracts are a source of harmful insecurity other workers will enjoy the flexibility that such contracts bring. The rise of ZHCs is clearly not an unambiguously bad thing, but nor should their rise be of little or no concern. Over a quarter of those on ZHCs are under-employed and want to increase their hours so it’s clearly the case that for a small section of the workforce ZHCs are a problem. With ZHCs now a permanent feature of the UK labour market the time has come for policy makers to consider action to protect workers from their most harmful effects.