The UK’s tight labour market and zero hours contracts

Published on Jobs, Skills and Pay

After five years of rapid increases, the number of people working on a zero hours contract has flat-lined in the UK over the past year. A tighter labour market may not yet be delivering increases in real pay, but it is slowly reshaping the type of work that we do for the better.

It’s also welcome that today’s employment statistics show that it’s not just the use of zero hours contracts (ZHCs) that has plateaued – the numbers of people working as self-employed, part-time and as agency workers have all stopped rising over recent months.

But atypical employment is still too high. There are over 900,000 people working on a ZHCand over 800,000 people working as agency workers (up 25 per cent compared to pre-crisis levels). Part-time work is also elevated, accounting for a notably larger share of employment than it did before the crisis.

With all of these forms of work there will be an array of experiences – for some, atypical work is a good way to spend a semi-retirement or to grab some extra hours between university terms. For others, however, this work is less positive – recent Resolution Foundation research found that over a quarter of men working in low-paid part-time work wanted to work more hours than they currently did.

What of ZHC workers? Who are they and how do they feel about the hours they work? Well, today the ONS has published a suite of statistics focusing particularly on zero-hours contract workers. Newly buried in the big quarterly data release these fascinating numbers are now easy to miss, so it seems worthwhile to spell out some of the most important findings from today’s data deluge.

Younger, and older, people are more likely to be on zero-hours contracts

The share of people working on a ZHC is much higher among those aged between 16 and 24 than any other age group. 1 in 12 people in work aged under 25 are on a ZHC, compared to around 1 in 50 of those aged between 25 and 64. This means that young people in work are 4 times more likely to be on a ZHC than older working-age adults.

In part, this will be driven by the large proportion of working students that have ZHCs. The most recent estimates suggest that almost 1 in 5 of those in work and in full-time education are on a ZHC. But fitting in work around education can’t explain all of the difference between age bands – there are 325,000 under 25s on a ZHC compared to 170,000 people in full-time education on a ZHC.

It’s also interesting to note that older workers, those aged 65 and over, are also more likely than average to work on a ZHC. It’s not clear whether this is something to be welcomed (ZHCs allowing flexible working) or something to be worried about (older workers struggling to find good quality work).

Women are more likely to be on a ZHC than men

Male and female experiences of the UK labour market are evening out, we saw just today that for the second month in a row the female and male unemployment rates were equal (employment rates are also closer than ever). But, despite men making up a higher share of the part-time workforce, it is still the case that women are significantly more likely to work part-time than men. Today’s data also shows that they are also more likely to work on a ZHC. 3.3 per cent (490,000) of women in employment are on a ZHC, compared to 2.4 per cent (410,000) of men.

ZHCs are concentrated in a small number of industries

ZHCs are far from uniformly distributed throughout the UK economy, and are – unsurprisingly – concentrated in lower paying sectors. In fact, over 4 in 10 of those on a ZHC work in just two sectors – hospitality and health & social work. 1 in 12 of the people working in “elementary” occupations, which includes jobs like shelf fillers, cleaners and agricultural workers are on ZHCs. The social care sector also has a high share of ZHC workers – 6 per cent of those working in “caring and leisure” occupations are on a ZHC.

ZHC workers are three times more likely to say they want more hours than others

The big debate when it comes to zero hours contracts is centred on choice. For their supporters, ZHCs allow unrivalled flexibility for workers – they can accept or reject shifts at will, making work fit around their lives. For their detractors, ZHCs are a business model decision made by employers to move risk onto workers – if fewer hours are needed, it’s the pool of ZHC workers that pay the price.

The evidence from the ONS suggests that although there is certainly an element of truth in the latter view, the majority of ZHC workers are happy with the number of hours their contract provides – With 6 in 10 of those on a ZHC are happy with the number of hours they work.

However, a sizeable minority – 25 per cent – of people on a ZHC would like to find a way to work more hours, compared to just 7 per cent of those not on a ZHC. The proportion of ZHC workers who would like a new job (12 per cent) is also twice as high as for those not working in this way (6 per cent). However, this large difference won’t just be driven by the difference in contract types. As we know, ZHCs are concentrated in lower paying sectors and among younger workers so it’s likely that – given we might expect these groups to be more likely to want to move jobs than most – compositional factors are playing a part here.

Overall though, ZHC workers – on average – work fewer hours, want more hours and are more likely to want a new job than those of us not working in this way. So, the case for giving workers the choice to move away from these contracts is strong: we should give employees the right to move onto a fixed hours contract after they have worked for the same employer for 12 weeks.

The labour market is currently doing the heavy lifting that policy makers are failing to do – it’s providing workers with more of a choice over whether or not they take up (or remain in) atypical work. So, if not real policy action then the next best thing for the UK’s 900,000 zero hours contract workers is that unemployment remains low. Despite a slight uptick today, at 4.4 per cent unemployment is still very near its all-time low. Long may this continue.