Labour's zero hours clampdown highlights lack of data

Labour's proposal to clamp down on zero-hours contracts has highlighted the lack of reliable data about one of the UK labour market's most contentious trends.

The most remarkable fact about these contracts is how little is known about them, in spite of their place in the political spotlight.

The Office for National Statistics has produced two very different estimates of the number of zero-hour contracts in the UK, neither of which economists fully believe.

The first, based on a survey of households, suggests there are 697,000 people whose main job does not guarantee them a minimum amount of work each week. The second, based on a survey of 5,000 employers, suggests there are 1.8m zero-hours contracts.

The first is probably an underestimate, since not all workers know their contracts are zero-hours. The second is probably an overestimate of the number of workers on these contracts, since some people will have more than one zero-hours job. The ONS also surveyed employers in August 2014, when there are more casual summer jobs in tourism and farming. Its previous survey, from January 2014, found there were 1.4m contracts.

Zero hours contracts are concentrated in the food, accommodation, support services, education and health sectors, although there is some disagreement between the two surveys. Labour market experts say the contracts have become more prevalent in the retail and social care sectors in recent years.

The data also offer clues, but no certainty, as to the proportion of zero-hours workers who are happy with the arrangement. The label "zero hours" can apply to very different types of arrangements, from occasional casual work at sporting events, to long-term jobs that offer regular hours in practice, but give employers the option to reduce them in principle.

David Owen, chief European economist at Jefferies, said the lack of good data made it a dangerous area to legislate in.

"Obviously what we need to know is how much of this is due to a more flexible labour market - people wishing to work on these contracts - and how much is creating a real sense of insecurity for people," he said. "There's an element of both, but what we don't know from the data is what the [balance] is."

According to the ONS, about 17 per cent of zero-hours workers are full-time students and 55 per cent are women. A third say they want to work more hours. While that is more than the 13 per cent of non-zero-hours workers who say the same, it still suggests two-thirds of zero hours workers do not feel underemployed.

The ONS does not measure how many zero-hours workers would prefer regular, secure jobs. The Chartered Institute of Personnel and Development, the professional body for HR professionals, surveyed zero hours workers in 2013 and found about half were satisfied with not having any guaranteed hours, 27 per cent were dissatisfied and 23 per cent were ambivalent. However, the sample was a fairly small 479 workers.

Trades unions welcomed Labour's proposal to give zero-hours workers who have been working regular hours for three months the right to a regular job, while employers' groups were dismayed. The CBI business lobby group, the Institute of Directors and the EEF manufacturers' body all said the policy would limit the flexibility of the workforce, which they cite as one reason why the UK survived downturn with much lower unemployment rates than its European neighbours.

But John Philpott, an economist from independent consultancy the Jobs Economist, said casualised low-wage work was probably bad for the UK's already weak productivity, since these workers were less likely to receive training and investment.

"If you're looking beyond zero-hours contracts to the broader low-wage economy, having a high employment, low productivity economy is a good thing during downturns, but I don't think it's necessarily the way you'd want the economy to run over the longer term."

Still, the UK does not have a particularly high proportion of non-permanent jobs compared with its peers. About 79 per cent of UK workers in 2013 were on a permanent contract, against 77 per cent in Germany and 65 per cent in Italy.

"The UK's flexible market is successful, but [these international figures] also illustrate that higher levels of employment regulation don't necessarily lead to higher levels of job security, as counterintuitive as that sounds," said Gerwyn Davies, CIPD's policy adviser.

One large employer of zero-hours workers, who did not want to be named, said Labour's plan "really does feel like going back in time". However, he said employers would simply find other ways to maintain their "dynamic" workforces. "Employers need more flexibility in this world, not less, so employers will find a way," he said.

Lawyers were quick to find potential loopholes for employers in the proposal, for example by varying zero-hours workers' hours in the first three months, which would allow them to claim they had not been working "regular hours" and so were not entitled to a regular contract. They also said employers could offer contracts with a very low number of fixed-hours instead.

"It is generally recognised that promising a single hour of work and a single hour of pay as a way of getting round zero hours legislation would be abusive, but where is the line drawn, and by who?" asked Colin Leckey, an employment partner at law firm Lewis Silkin.

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