Labour Market

Britain does not have an ‘underemployment’ problem

When I was growing up, unemployment was the great economic concern of our time. If I’d been born a little earlier, it would have been inflation, but in the 1980s the glowing orange signs of the old Jobcentres were a ubiquitous feature of the television news.

And with good reason. In 1984, the unemployment rate reached almost 12 per cent. When I was studying for my economics A-level in the early 1990s, it was still above 10 percent. The persistence of this great evil gave my teacher’s Keynesianism a certain appeal to my teenage self, but it would not be long before unemployment began to fade as an issue. Within a couple of years, it was falling steadily and for most of the Blair era it hovered at around five per cent. The Great Recession caused it to jump to eight per cent for several years before falling sharply again after 2012.

Towards the end of 2018, the rate of unemployment dropped to just four per cent, lower than at any time since the spring of 1974. With 32.53 million people in work, the employment rate is 75.8 per cent, the highest since records began in 1971.

This seems like cause for celebration, but there are some who say that Britain’s employment miracle is more of a mirage, with full-time jobs being replaced by insecure zero-hours contracts, and unemployment being replaced by ‘chronic underemployment’. The tweet below, which has received thousands of retweets, typifies the view that the unemployment rate only appears to be low because of a definitional technicality. The unspoken message is obvious: these aren’t real jobs.

The ONS’s Labour Force Survey (LFS) does indeed count someone as employed if they have ‘done at least one hour of paid work in the week before they were interviewed’. It has always done so and you don’t need to get in touch with the ONS to discover this. It is there in black and white on the ONS website where you can also find information about the number of people on zero-hour contracts and how they feel about them.

The Labour Force Survey shows that there has been a large rise in the number of people who say that they are on zero-hours contracts. From 252,000 in 2011, the figure had risen to 903,000 by 2016. Curiously, most of this increase took place in a single year (between 2012 and 2013) and the ONS notes that the sharp upward trend is ‘likely to have been affected by greater awareness and recognition of the term “zero-hours contract”’.

This is an important point. ‘Zero-hours contract’ is a relatively new term for what used to be called casual labour. It was almost never used by the media before 2012. And so, although the number of people who said they were in these contracts more than doubled between 2012 and 2013, the ONS concludes that this ‘appeared to be due mainly to increased recognition and awareness of “zero-hours contracts”’. The fact that the trend flattens out after 2016 suggests that the term has now become universally understood.

There is a chicken and egg problem here. It is not clear whether the publicity surrounding zero-hours contracts has caused more people to identify as being on them or whether the rapid rise in the number of people on zero-hours contracts generated the publicity. It may be a bit of both.

There is another source of statistics that could help but it also has a flaw. The ONS’s Business Survey asks companies whether they employ people on ‘contracts with no guaranteed minimum number of hours’. By this measure, there were between 1.6 million and 2.0 million zero-hours contracts in late 2017, equating to six per cent of all employment contracts.

Business surveys arrive at a larger number for two reasons. Firstly, employers are more likely than employees to understand the technicalities of their contracts. Secondly, while the LFS counts people, the employer survey counts contracts, and since some workers have multiple contracts, it does not tell us how many people are on ‘contracts with no guaranteed minimum number of hours’. Unfortunately, some newspapers seem not to realise this.

The flaw is that the ONS has only been asking this question of businesses since 2014 so while the business survey shows little change in the number of contracts in the last few years, they do not shine any light on the period when the employee surveys show the biggest rise.

There is simply inadequate evidence to conclude that there has been a big rise in the number of people on zero-hours contracts in the last decade. Nevertheless, 901,000 people – 2.8 per cent of the total workforce – say that they are on them and there is little reason to disbelieve them. Should we be concerned? Are they, as some have suggested, ‘chronically underemployed’ and should we view them are being virtually unemployed?

ONS figures are more useful for answering this question. They show that the average person on a zero-hours contract works 25.2 hours a week. This is 31 per cent less than the average full-time worker but that is hardly surprising given that two-thirds of people on zero-hours contracts work part-time and nearly a fifth are in full-time education. It is, however, 55 per cent more than the average part-time worker. Moreover, the majority of zero-hour contract workers seem to be satisfied with the hours they are given and there is evidence that they are more satisfied with their work-life balance than those on full-time contracts.

Only a quarter of people on zero-hours contracts say that they would like more hours and this number has been falling. In 2014, it was more than a third. A quarter is a significant minority, but it is not unusual for workers who do not work full-time to want more hours. Many of them have only recently entered or re-entered the labour market. In the UK, 15 per cent of part-time workers would prefer to be working full-time (down from 20 per cent in 2013 and well below the EU average of 26 per cent). The ONS notes that zero-hour contract workers are more likely to want more hours than the average employee but acknowledges that this ‘could be linked to a higher proportion of “zero-hours contract” jobs being part-time’.

My colleague Len Shackleton has discussed zero-hours contracts before so I will not go through the pros and cons again here. The aim of this blog post is not to reopen the debate about whether these contracts should be banned (as the TUC wants) but to debunk the notion that Britain’s unusually low level of unemployment is a chimera and that the true level is being masked by chronically underemployed people being wrongly classified as being in work. The reality is that the average person on a zero-hours contract works longer hours than a part-time employee and although some would like more hours, a growing majority do not.

In any case, the number of people involved is not big enough to make a significant impact on the employment statistics. Even if we made the ludicrous assumption that every zero-hours contract worker who wants more hours is barely working at all and should be reclassified as unemployed, it would only take the employment figures back to where they were last September. Employment would still be at a record high and unemployment would still be at its lowest level since 1975.

Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".

2 thoughts on “Britain does not have an ‘underemployment’ problem”

  1. Posted 01/02/2019 at 14:49 | Permalink

    Unfortunately this is not the whole picture. One reason for the high lrvel of employent in the UK is the economies low productivity in comparison with most other counties in Europe. This fact goes a long way to exlaing why the are apparently a lot of poorly paid jobs.

  2. Posted 10/02/2019 at 16:59 | Permalink

    It is odd that inflation is not rising if we are not under-employed. There are also many people classified as self-employed and I am not sure if they are included in your statistics for those on zero-hours contracts? In theory a self-employed person should have more than one client, but I suspect that many are not fully occupied. In any case so long as employers can import cheap labour from abroad the problem of wage compression will persist.
    Perhaps we need some sort of online self-assessment procedure for the underemployed to claim benefits. They would not get paid until they had submitted their timesheets. We could then gather much more accurate information about hours worked and additional hours desired.
    In any case the only reason the unemployment figures have fallen is for two policies the government never intended in the first place; the devaluation following the referendum and the restarting of QE in 2016, forced upon them by the need to finance our massive trade deficit with the EU. QE will only give us a temporary high before the deficit reasserts its awful destiny. QE will stop working when the personal debt market saturates, at which point the shit will really hit the fan.

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