Zero-hours contracts are in the news again, with Vince Cable last week announcing an enquiry into this type of arrangement.

These contracts involve people agreeing to be available for work as and when required, but have no guaranteed hours or times of work. They provide employers with a pool of people who are ‘on-call’ and can be used when the need arises. Long familiar in the retail and hospitality industries, the use of zero-hours contracts has spread recently to a wider range of employment including healthcare (with up to 100,000 such contracts, including last year as many as 800 consultants), education and public services.

Recent Labour Force Survey figures from the Office for National Statistics indicate that the numbers on zero-hours contracts have risen from 131,000 in 2007 to 200,000 last year. The ONS says, however, that this probably underestimates their incidence, for many people are unfamiliar with the term and thus may not answer questions accurately. My own son, for instance, has been working on such a contract for two years but did not realise this till I pointed it out to him.

Unions have attacked these contracts as exploitative, giving employees uncertain incomes, little security and only limited access to benefits such as training, pensions and paid holidays. They may also create difficulties (because of variations in pay) for those entitled to in-work benefits. The TUC and Shadow Health Secretary Andy Burnham have rather predictably called for them to be banned.

Why has the use of these contracts grown? It is easy to see them as the result of unscrupulous employers trying to squeeze out extra profits at the expense of workers. However many of the employers involves – including the NHS, remember, as well as good private sector employers such as Boots and McDonalds – counter that they offer opportunities to many people who would otherwise find it difficult to take regular work at fixed times. This includes students (whose class timetables change from term to term), and people with children and other care responsibilities. They are free to take shifts, or refuse them, on a day-to-day basis as their availability alters. Other people on zero-hour contracts include people available for occasional extra work in addition to their main job, and semi-retired individuals who want to work occasionally but not on a fixed weekly basis. In some ways these contracts thus resemble other forms of work such as freelancing and self-employment.

Clearly the recession has increased pressure on both private and public sector employers to cut costs. Many types of service employment are subject to fluctuations in demand and zero-hours contracts are one way to minimise fixed costs. Note that there is a strong seasonal pattern in zero-hours contracts, something which critics don’t appear to have noticed.

An important factor, again not discussed much by those who want to ban zero-hours arrangements, is the fact that another important way of minimising labour costs when demand is variable  – the use of agency workers – has become much less attractive as a result of the Agency Workers Regulations 2010. These regulations force employers to treat such workers effectively as permanent employees after just 12 weeks. This is almost certainly a large part of the explanation of the increasing use of zero-hours contracts in the NHS.

Zero-hours contracts are not ideal, and not for everyone. Even just from the employer perspective, it does not make sense to have such arrangements where workloads are consistent and predictable. But they are an important element in offering job opportunities to some groups who would not be able to work regular hours, they offer useful work experience to young people, and their growth has helped keep unemployment down in the UK at a time when most other European countries are seeing appalling levels of joblessness. The government would be unwise to give in to those calling for an outright ban.

Len Shackleton 154x154

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

2 thoughts on “Why zero-hours contracts should not be banned”

  1. Posted 18/06/2013 at 13:55 | Permalink

    This seems to be another example of the ‘one size fits all’ mentality — which itself is a surprising phenomenon in an age when we are always being told how important ‘diversity’ is. The fact is that people’s circumstances and preferences can differ widely; and the whole philosophy of a market economy is based on the notion of voluntary deals suiting all parties to them. The government should think long and hard before banning activities that all the participants are in favour of. Tolerance (of differences) is a virtue.

  2. Posted 09/07/2013 at 14:51 | Permalink

    Voluntary agreements are all fine when the number of vacancies advertised is similar to the number of job hunters. When there are 300 people chasing one job zero hours contracts just another example of the race to the bottom for employee rights.

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