The UK labour market situation post the credit crunch shock can according to the official figures be looked at as a game of two halves. What I mean by that is that the quantity measures such as employment and unemployment have performed well but the price measure or wages has disappointed. As I pointed out in my analysis of the 30th of August this situation is one which poses serious challenges to conventional economic theory. This is not just true of the UK as Japan has very little wage growth in spite of reaching what was considered to be the full or natural rate of unemployment.
There are two main routes where we can make progress in understanding this position. One is to note the data which is excluded from the official numbers such as wages/pay for the self-employed and the other is to dig deeper into an area mostly ignored by the UK monthly updates which is the concept of underemployment. This is a situation where people have work but would like to be able to work more. The United States makes a better fist of this than we do which is why I regularly quote their measure of un (der)employment called U-6 which includes this.
Persons employed part time for economic reasons (U-6 measure) are those working less than 35 hours per week who want to work full time, are available to do so, and gave an economic reason (their hours had been cut back or they were unable to find a full-time job) for working part time. These individuals are sometimes referred to as involuntary part-time workers.
In the UK one way we have begun to get a little more insight into the situation has been the way that we have gathered more data on those on what are called Zero Hours Contracts or ZHCs.
This company has been hitting the headlines in recent times and in many respects it should not have been a surprise because we knew that the retail industry was one where ZHCs were used extensively. However maybe not this extensively. From Reuters in July
Britain’s biggest sporting goods retailer Sports Direct employs around 75 percent of its 19,000 UK workers on much criticised zero-hour contracts, its chairman said on Wednesday.
The situation in the main warehouse was exposed to be one which undercut even the use of the phrase Victorian workhouse as conditions were dreadful and the minimum wage was undercut. This was in marked contrast to other employees of the company.
Sports Direct, whose 4,300 permanent UK staff qualify for lucrative bonus share scheme payouts,
There have been changes over the past couple of days but not apparently to the main warehouse. So our eyes were opened to a company that was clearly operating what we feared which was a two class employment situation of in effect have and have-nots. Maybe some of the shop workers were students who were suited by ZHCs but it is hard to believe that the workforce at the main warehouse did on such a scale. As the workforce there was mainly composed of immigrants we also saw an example of them associated with low wages.
Today’s update on the national situation
The Labour Force Survey or LFS gives us an idea of the scale.
According to the LFS, the number of people employed on “zero-hours contracts” in their main job during April to June 2016 was 903,000, representing 2.9% of all people in employment.
And also the rate of change.
This latest estimate is 156,000 higher than that for April to June 2015 (747,000 or 2.4% of people in employment).
I guess you are not going to be surprised by who they are.
People on “zero-hours contracts” are more likely to be young, part-time, women, or in full-time education when compared with other people in employment.
We do get some direct insight also into the underemployment situation.
On average, someone on a “zero-hours contract” usually works 25 hours a week. Around 1 in 3 people (31%) on a “zero-hours contract” want more hours, with most wanting them in their current job, as opposed to a different job which offers more hours. In comparison, 10% of other people in employment wanted more hours.
Now we hit a problem which is that the LFS is a survey and thus relies on people reporting that they are on a ZHC. I have pointed out before that this is true of other areas such as full-time work where there is not the set definition you might think. But in this area where if the Sports Direct situation is any sort of guide at all we could see that an immigrant workforce may not report the situation.
Another way of looking at the state of play is to use what businesses report to the ONS.
The results from the November 2015 survey of businesses indicated that there were 1.7 million contracts that did not guarantee a minimum number of hours, where work had actually been carried out under those contracts. This represented 6% of all employment contracts.
As you can see there is quite a gap between the two different ways of counting as we are reminded that certainty and precision in the labour market is somewhere between a mirage and a chimera.
Can we define it?
It is not easy but the official UK version goes as follows.
To provide clarity and prevent confusion with the other estimates of “zero-hours contracts”, the remainder of this article refers to estimates from our business survey as no guaranteed hours contracts.
The Resolution Foundation
This has tried to offer more insight by breaking down the numbers after excluding those who are likely to be keenest on the flexibility of ZHCs such as students.
For workers aged over 25, more than two in three workers on ZHCs (400,000) have been with their current employer for more than a year.
They also argue this.
The Foundation notes that for many of these workers, fixed-hour employer contracts, which offer a guarantee of paid work and paid holiday and sick leave, would be more appropriate.
This really opens a can of worms as what if the jobs would not exist on such terms? But we also have the example of Sports Direct where an unscrupulous employer has exploited the situation to drive higher profits and bonuses for the few. I wonder how long someone in the Sports Direct warehouse would have to work to get the wad of £50 notes that Mike Ashley pulled out of his pocket yesterday?
The credit crunch era has made us look more closely at the data we are given on the labour market and the truth is that what were previously regarded as cracks are in fact fissures. The wages numbers exclude the self-employed and those at small businesses for example. But we have to face the fact that the idea of a single labour market is a fantasy and we have in fact a multitude of them. For some such as those in receipt of Sports Direct bonuses it is a really nice place to be. But if we exclude them what is the state of play of the majority?
Also if we now move specifically to ZHCs they are part of a trend which I think that the Resolution Foundation is right to specifiy.
The Foundation adds that while ZHCs still make up a small share of the labour market – less than a million workers are on one – they form part of a wider growth of atypical employment, including self-employment and agency work, which often lack the rights and security that employees receive.
So a decent slug of the labour force is in a quite different situation as we think of businesses like Uber and indeed the “gig” economy. This will not be bad for everyone as some it will suit but many it will not. It would be revealing I think to see how wages have performed for these people. Also it is hard to see anyone being keen on this.
In April to June 2016, 15% of people on “zero-hours contracts” worked no hours in the week before their LFS interview compared with 9% of other workers
Yet we are supposed to have so much employment legislation aren’t we?