Zero-hours contracts have their place in the labour market

One million people on zero hours contracts, scream the media – quoting figures released today by the Chartered Institute of Personnel and Development. This is at odds with recent ONS figures that put the number on these contracts closer to 200,000.

Zero-hours contracts have been around for many years in the retail and hospitality industries, where demand fluctuates from month to month and even day to day. Their use has spread recently to other sectors including healthcare (with up to 100,000 such contracts, including last year as many as 800 consultants), education and public services. In response to the media storm, the Department for Business, Innovation and Skills is conducting a review.

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. Unions have been quick to point to hard cases where individuals are unhappy with their arrangements. However, today’s CIPD findings confirm that the large majority of people working on zero-hours contracts are happy to do so. Their use also isn’t confined to the private sector. 34per cent of employers in the voluntary sector and 24 per cent of ones in the private sector use them compared to just 17 per cent of private sector employers.

These contracts offer opportunities to many people who would otherwise find it difficult to take regular work at fixed times: think of students and single parents. They are normally free to take shifts, or refuse them, on a day-to-day basis as their availability fluctuates. Other people on zero-hour contracts include those 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.

The growth of zero-hours contracts has been a product of making agency work and other forms of non-permanent contract more costly for employers. There will always be a need for variable hours and seasonal workers. Banning zero-hours contracts and trying to force people onto permanent contracts is not the answer; it would be detrimental to both employers and employees. More worryingly, we would likely see much more of this kind of work done cash-in-hand in the shadow economy.

Zero-hours contracts are not ideal, and not for everyone. They make little sense for many employers in sectors where workloads are consistent and predictable.

It is, though, important to offer job opportunities to some groups who are unable to work regular hours and for young people. The growth of these contracts has helped to keep levels of joblessness down at a time when many other European countries with less flexible labour markets have seen staggering levels of unemployment. While Vince Cable’s review may be useful in giving us a clearer picture of what is going on, he should not allow emotions to run too high. An outright ban of zero-hours contracts would do more harm than good.

This article originally appeared on Spectator Coffee House.

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.