What is the state of play regarding Zero Hours Contracts in the UK?

This morning has begun with a rather unseasonal message as the Trades Union Congress (TUC) has published some research on wages and conditions for those who are on Zero Hours Contracts in the UK. This is an area which has been pretty much  ignored by our official statisticians until recently in spite of the fact that the existence of such contracts stretches back at least to the beginnings of this century. So let us first examine the official data.

What is a Zero Hours Contract?

The phrase gets bandied about fairly regularly in the media so let me present you with the official definition.

where a person is not contracted to work a set number of hours, and is only paid for the number of hours that they actually work

How many people are on Zero Hours Contracts?

Back in August the Office for National Statistics used its Labour Market Survey for the spring of this year. First they asked workers if they felt they were subject to a Zero Hours Contract.

The latest Labour Force Survey (LFS) estimate of the number of people in employment on zero hours
contracts is 622,000 for the period April to June 2014.

A substantial number but we were reminded that even a survey of this size (100,000) has a variance for error.

For the April to June 2014 figure, it is estimated that the true figure is likely to lie between 558,000 and 686,000.

If we look at the analysis then some matters stand out from the numbers. For example women are disproportionately affected as are younger people.

37% of people on zero-hours contracts are aged 16 to 24, compared with 12% for those employed who are not on zero-hours contracts.

Also part-time workers are disproportionately affected.

64% of people on zero-hours contracts reported that they worked part time, compared with just over a quarter (27%) of those employed who are not on zero-hours contracts.

Also one particular sector contains many Zero Hours Contracts.

Accommodation ; Food Services or Health ; Social Work.

The effect on what is considered to be a normal working week is as follows.

The average actual weekly hours worked by people in employment who report being on a zero hours
contract is 22 hours compared with 32 hours for all workers. The average usual weekly hours is higher at 24 hours (37 hours for all workers).

However even such relatively thorough analysis was questioned ironically from another part of the same Labour Force Survey.

For the ONS business survey, there were 1.4 million employee contracts that did not guarantee a minimum number of hours, which provided work in the survey reference period.

So more than double. Ouch! We can erase a little of the difference by considering that some workers will have more than one Zero Hours Contract but a large gap remains. Also the lower employee number is only for those who have a Zero Hours Contract in their main job.

The TUC Research

The TUC seems to have no doubts about the differences between the two methods of calculating the number of people on Zero Hours Contracts.

In April 2014 ONS published new research which estimated that there are at least 1.4 m zero-hours contracts in use in the UK.

At least? Rather oddly it then mentions the 558,000 number which last time I checked is not at least 1.4 million!

However the main thrust of the research is on pay and conditions. It finds a similar state of play in terms of occupations where Zero Hours Contracts are widespread to the official data.

Skills for Care, the workforce development body for adult social care in England, estimates that 307,000 adult social care workers in England were employed on zero-hours contracts in May 2013, representing at least one in five of all workers in the sector.

The numbers in terms of hourly pay show quite a drop as we move from permanent work, to temporary work and then to Zero Hours.

Average gross hourly pay for employees is £13.30 for permanent employees, £11.28 for temporary workers and £8.46 for zero-hours contract workers.

So there is quite a gap on hourly rates which gets worse if we look at weekly wages due to the fact that those on permanent and even temporary contracts work more hours.

Average gross weekly pay for employees on permanent contracts is £476.26 compared with £296.06 for temporary workers.

This compares with £188.19 per week for those on Zero Hours Contracts according to the TUC. Quite some gap isn’t it?

What about other work benefits?

This is an area where those on Zero Hours Contracts are likely to miss out too. By this I mean primarily pensions and holiday and sick-pay although of course some employers provide other benefits as well.

Of course for some on Zero Hours Contracts there are what we might label as negative benefits. What I mean by this is that uncertain work hours and pay do not go well with the certainty of most people’s bills for necessities and the basics of life.

Misery loves company

This was on my mind as I noted this release on inflation trends earlier.

The rate of inflation experienced by lower-spending households has averaged 3.3% per year over this period, compared with 2.3% per year for the higher-spending households.

So even the official data appears to be noticing that falls in real wages at the bottom end of the wage spectrum have been more than they have previously told us. I will cover the full details tomorrow as we have the monthly inflation report but I would make each member of the Bank of England sign that report under a statement which says that they have read it and understand the implications.

Comment

There is much to consider about Zero Hours Contracts and the pay and conditions that they bring. Firstly we need to note that they tend to be in lower paying occupations so that we need to apply something of a filter to the differences above. What I mean by this is that in the official data the median weekly wage for those in the caring,leisure and service sector was £335 per week compared to £518 for the whole economy. So some of the gap discussed by the TUC is down to the sector in which Zero Hours Contracts are most prevalent.

But there is a clear gap even allowing for this and to the question what do we do about it we have a clear issue? The world is changing and there is severe pressure on employment conditions which the UK has mostly taken in the wages area since the credit crunch began but France for example, as I discussed on Thursday has taken it in unemployment. Neither is especially pretty or welcome are they? What troubles me is the fact that we have one group who seem to receive more workers rights as time goes by and one group which seems to barely have any. We could do with a rethink and some sharing as it is a horrible image of one group in effect preying on the other to some extent which comes to mind. If you think of my theme of the UK’s propensity to institutionalised inflation and the impact of this on our poorer citizens you will get my point. I am also reminded of the breakdown of the recent ASHE (Annual Survey of Hours and Earnings?) survey where for 70% the credit crunch had not changed things much but 30% had been badly affected. In the end it all comes down to what sort of society we want. We are increasingly unwilling to punish those in authority but sadly also turn our eyes away from the fact that the price is often paid by those least able to afford it.

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17 thoughts on “What is the state of play regarding Zero Hours Contracts in the UK?

  1. Hi Shaun

    Great article as always. Its nice to read a balanced view rather than the hyperbole in the press.

    You’d think zero hours contracts have magically appeared under the tories. As you’ve mentioned they’ve been around for years, and the number of workers employed with them, last peaked in 2007 under the labour government.

    where was the outcry then?

    This is where we need a citizens income. Going forward lots of jobs will be lost under automation. Amazon is vilified for its employment practises (perhaps rightly so), but in ten years, I can see them employing very few staff in their warehouses, and lots of robots/automation.

    A land value tax to fund a citizens income.

    • There are several other factors the politicians are ignoring.

      1 ) Immigration : The USA historically used immigration to apply downwards pressure on wages. Labour have instructed candidates/MPs not to discuss immigration. Put head in sand policy.

      2 ) EU freedom of movement. This EU right allows citizens to freely move for work, which in turn applies economic forces toward converging wages. The 2004 & 2007 EU expansions have caused upwards pressure on wages (especially skilled wages) in new member states. Besides the UK and France, we’re also seeing enlargement effects in Italy and possibly Portugal. Again, our political classes are not telling us the whole truth.

        • Undoubtably there are a few bad, exploitative scumbag employers. In my personal experience the scumbags are not particularly successful, because a well managed business needs smart, hardworking good employees. But businesses face competitive pressure. Competition is beneficial to consumers, but historically those same competitive pressures hurt working class Americans.

          There are also a few scumbag employees, the lazy, the thieves and people who turn up drunk, etc.

          My observation is a reflection of how I see European economies behaving, not how I want them to behave.

          I think Brit politicians ought to seriously lower housing costs. This would boost everyone’s spending power. It’s not important how many £s you earn, what’s important is your purchasing power -> strictly speaking what your wages can buy.

  2. I’m afraid you’re already a little out of date here Sean.
    Zero hour contracts are quickly becoming the norm in areas such as marketing and IT, and this is for people with 10 years experience so will include team-level management positions.
    I can see several advantages for an employer:
    – cheap way of trying out new staff over an extended period
    – ideal if you’re not sure whether an upturn in business will last
    – pushes down wages generally since a permanent job becomes more valuable
    Indeed its difficult to see much downside for non-core positions if properly managed (although going by past performance in areas such as outsourcing thats a big ‘if’).

    • HI Arrbee

      Thanks for the information. The TUC report wrote about the spread of Zero Hours Contracts into the public-sector especially to teachers and lecturers. They also mentioned them reaching junior airline pilots. So they are spreading and of course in a type of irony that will narrow the reported pay gap,

  3. I wonder how many of these people have actually chosen so called zero hours contracts? It suits my daughter and a few of her friends to do this as they have great flexibility in their hours whilst bringing up children. At the other end of employment, I have friends who are semi retired supply teachers, accountants, IT specialists and HR consultants who work very happily on zero hours type arrangements. They don’t want full time employment. Are these included in the numbers? I ask because if I know a lot of them then there must be a lot out there and they must make up a significant part of zero contracts.

    • Pish.
      People want jobs that tie in with their lifestyles, whether that be full-time or part time.

      Everyone I know who has ZHC works when they’re told, or else.

  4. Great column, Shaun, as usual. Thank you for alerting me to the publication of the ONS report on “Variation in the inflation experience of UK households, 2013-14”. I was frankly very surprised at the size of the differences over such a long span of time. The Bortkiewicz-Szulc analysis (it is described in section 8.1 of the most recent reference paper for the Canadian CPI) suggests that the differences between CPIs for different demographic groups would generally be small over an extended period of time. The essential point is that the difference between two CPIs with the same prices but different baskets depends on the differences in the baskets, the differences in component inflation rates and the correlation between them. While different income groups have quite different spending patterns and different commodities have quite different inflation rates, there is no reason to believe that there will be a strong correlation between them, i.e. that low-income households or any other demographic group would masochistically concentrate its spending on items that are showing high relative price increases.
    The ONS paper doesn’t reference any StatCan studies of low-income CPIs, but there have been a lot of them, going right back to the original study by Gord Wallford in the early 1970s. None of them found differences as large and persistent as this ONS study, although none of them broke the population down into deciles either. Radu Chiru’s 2005 study looked at income quintiles.

    • Hi Andrew

      In my view a cause of this has been the rise in commodity and oil prices as the credit crunch developed. This is a worldwide issue so I would not be suprised if other staistical agencies saw similar trends. However the UK experiences was exacerbated by the 2007/08 fall in the value of the UK Pound.

      As the price rises were in fuel and energy the poorest were in many ways trapped by the higher prices with not many alternatives.

  5. Shaun, I was particularly struck by this passage from the ONS study: “Stronger price growth for education and transport & package holidays – which receive a larger weight in the higher-expenditure group – act to reduce this differential [in inflation rates between the 2nd and 9th deciles] throughout the period [2003-14]”. So package holiday trips, while they don’t have a big weight in the CPI, seem to have a big impact on inflation differentials between groups. All the more reason that something should be done to replace the dysfunctional holidays index now found in the RPI and the CPI with a decent monthly-weighted price index. I hope this gets discussed at the meeting of the RPI CPI User Group later this week as there are no signs that the Johnson Review Panel intends to look at this, and it is a real shame.

  6. Shaun, I noticed that the ONS study says that “further work could be carried out to extend our findings from CPI to CPIH – allowing housing costs for all households to be included in the sub-group inflation estimates” because rental equivalence is “the ONS’ preferred measure” .It seems that the authors, Tanya Flower and Philp Wales, are speaking for the ONS, not just themselves. I certainly didn’t notice any disclaimer to the contrary. Work spent changing these CPI estimates by income decile into CPIH estimates would be a waste of time. The RPI/RPIJ treatment of owner-occupied housing is, for uprating purposes, probably the best of any official consumer price series in the world. It would make more sense to try to duplicate the authors’ analysis for the RPI/RPIJ rather than do it for the CPIH. As it is their CPI series include mortgage interest costs and they use a gross premiums rather than a net premiums approach in measuring insurance costs. Probably without intending to, they have essentially adopted the same approach to OOH as the Irish use in their CPI.

    • Hi Andrew

      Perhaps the ability of the UK statistical establishment to end up embarassing themselves on the subject of CPIH knows no bounds! On this subject we now have the net acquisitions numbers on the Eurostat basis. I rang the ONS about them and was not entirely surprised to be told I had been the only caller.

  7. Hi Shaun
    I think you have to add the big jump in ‘self employed’ to get to the real situation here. There are a lot of people forced into this category , and a lot who elect to do so to get benefits. The numbers are very difficult to find but I would postulate that most of the ‘growth’ is from under-employed who are no longer captured by other stats.

    • Hi JW

      With all of these numbers/statistics we find that any detailed analysis opens up all sorts of new questions. I am reminded of the Yes Minister episode from 1983 which assumed that the unemployment figures were manipulated as a matter of course. Added to this we place ever more pressure on them.

      The next installment in this series arrives on Wednesday….

  8. I can imagine a network like Uber, matching individual job tasks to workforce panticipates. Opening even the smallest job to competitive wage pressure.

    Perhaps it would look like a negative eBay auction as users bid down their wages for an afternoon of carer work. It’s going to be devastating.

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