Zero hours contracts
What are ‘zero hours’ contracts?
The term ‘zero hours contracts’ (also called casual contracts) can refer generally to any employment contract that does not guarantee a minimum number of hours, or more specifically to employment contracts where the phrase ‘zero-hours’ is used.
While there are around 1.8 million workers in the UK who have contracts with no minimum specified number of hours (around 6% of all employment contracts) only half are technically on ‘zero-hours’ contracts. The number of workers on specifically defined zero-hours contracts has increased considerably since 2000 (from 225,000 to 901,000 in 2017).
While these contracts are common in employment based on ‘piece work’, and where workers are ‘on call’, critics argue that the rapid growth in their use has more to do with the exertion of employer power than the logical use of an efficient method of employment.
Information on zero-hours contracts is gathered by the Office for National Statistics (ONS) using a biannual survey of business which it then combines with Labour Force Survey (LFS) estimates based on what employees report to them to give an overall figure.
According to the ONS a typical worker on a zero-hours contract will actually work around 24 hours on average.
Who are typically on zero-hours contracts?
Women are more likely to be on zero-hours contracts than men, in the ratio 55/45, as are younger workers – with nearly 20% in full-time education. Part-time work is also much more likely to be based on zero-hours contracts, at 66% compared with full-time.
In terms of industries, the chart below shows the percentage of employees in specific sectors on zero-hours contracts, with administration and support, and food and accomodation services having the highest concentration of zero-hours contracts.
Costs and benefits of zero-hours contracts
Zero-hours contracts have many critics, including labour unions who regard them as modern instruments of control over labour and wage costs. Typical of the union perspective is that of the UK’s Unite union which actively campains against the rise of zero-hours contracts, claiming that employers ‘.. use zero hours contracts to cut wages, avoid holiday pay, pensions, and other benefits enjoyed by employees and agency staff. Workers are also unable to take on other work, as they are obliged to be available for work … leading to a …high level of insecurity…’. The increasing use of such contracts may also increase general inequality, and help sustain the gender pay gap.
However, it can also be argued that such contracts increase choice and enable greater labour market participation from groups who may not be willing or able to work on a full-time basis.
The ONS survey provides some evidence to support the view that zero-hours contracts may suit many employees. The ONS found that some 60% of those working on zero-hours contracts do not wish to work more hours. This is in contrast to workers already on full-time contracts, around two-thirds of whom stated that they would be happy to work more hours.
From this we could reasonably assume that for many workers (especially those in the gig economy) the flexibility of working on zero-hours contracts provides them with a level of benefit that outweighs any loss of income and security from being on such a contract, as compared with having a full-time contract.
Hence it could be argued that zero-hours contracts are not simply a ‘one-way exploitation’ of one economic agent by another, but that zero-hours contracts provide a beneficial employment option for some workers while meeting the needs of many profit-maximising employers (especially those exploiting developments in new technologies*) – to keep average labour costs low, and make total costs as flexible as possible to match changes in demand and revenue. New businesses in particular may gain from using this type of contract as a way of dealing with uncertainty and information failure in terms of understanding and predicting the pattern of demand for their goods or services.
In addition to the micro-economic effects of zero-hours contracts, there may be macro-economic benefits associated with increased labour market flexibility and improving supply-side performance. This in turn may increase export competitiveness and lead to job creation.
Government policy on zero-hours contracts is that while the use of such contracts may be justified, they should not be used as a general solution to staffing, and only used when appropriate.