Zero hours contracts and the flexible labour market
17 August 2012
Recent media interest in zero hours contracts has shed some light into a largely forgotten corner of the UK’s flexible labour market. The zero hour contract, in effect, requires the individual to be available for work, but his or her employer are under no obligation to provide work. Some employers see zero hours contracts as a way of ensuring flexibility and remaining competitive in situations where work fluctuates unexpectedly from day to day or week to week. However, some of those on zero hours contracts see them as exploitative, where they bear all the risk and where the balance of interest lies almost entirely with the employer.
Hard facts on zero hours contracts are limited. The most up to date figures come from the household Labour Force Survey (LFS), which shows that in the last quarter of 2011 there were around 160,000 people on zero hours contracts – or 0.6 % of the workforce. So they are clearly not as widespread as often assumed.
However, it is possible that the incidence is being underreported, because while people may be aware they are employed on a casual basis, they may not be aware that the contract is called zero hours. The 2011 Labour Force Survey gives respondents a choice of flexible working arrangements to describe how they work, which includes zero hours contracts – but also includes on-call working. The ONS thinks that most people know what the various categories mean and the survey guidance says that if someone is uncertain, they are coded either to the “on-call” category or as not working flexibly. In 2011 there were another 440,000 people doing on-call working – the most obvious examples being hospital doctors and live-in carers.
The LFS allows us to look at where zero hours contracts are concentrated and who is on them – but these figures come with a strong health warning. The LFS sample of workers with zero hours contracts is very small – and the smaller the sample the less reliability can be placed on the figures.
Those on zero hour contracts are more likely to be women (56 %). Zero hours as a share of the workforce are most common in the arts, entertainment, and recreation services (2.5 % of the workforce); in accommodation and food services (2.2 % of the workforce); and healthcare services (1.2 %). Not surprisingly, they are most common in caring and leisure occupations (1.7 per cent) and also among the less skilled (1.4 %).
Although as the figures suggest zero hours contracts are more often associated with hotels and restaurants and the entertainment industries, zero hours contracts are also used in the NHS to manage short-term staffing shortages and provide short-term cover, by universities for teaching and support staff where demands are highly unpredictable, and in education to provide supply teachers.
Are zero hours contracts on the increase? The perception is that they are. The additional pressures brought about by the recession and public spending cuts are both reasons why they might have increased. Unfortunately, here we have to be even more cautious with the statistics. The same figures for 2007, just before the recession, stand at 140,000 – but the difference between this and the figure for 2011 could be just as easily within the normal margins of statistical error as a genuine increase. Moreover, the 2007 survey did not include the “on-call” category and we have no idea whether its inclusion would have affected the numbers saying they worked zero hours contracts. So while the incidence of zero hours contracts may have increased, we cannot safely conclude that it has.
Are zero hours contracts necessary or desirable? The UK labour market is already highly flexible and many other forms of working are available which give both employers and employee the benefits of flexible working. The fact that these other forms of flexible working are much more popular and widely used tells its own story. So if zero hours contracts did not exist, it is not obvious the overall flexibility of the labour market would greatly suffer. On the other hand, if they became much more widespread it would damage productivity. Employers have no incentive to invest in casual labour. It would also greatly increase job insecurity and leave many low income working households hard pressed to handle unpredictable fluctuations in income without going into debt. None of these developments would help put the UK economy back on a sustainable growth path.
That said, there will be jobs where demand is so unpredictable that employers would otherwise struggle to provide the service required at a competitive cost. Zero hour contracts can suit some people, especially those with skills in demand or those looking for an occasional rather than regular income.
On balance, there is a place for zero hours contracts – but it should be a very small one. My three recommendations are as follows. First, zero hours should only be used if no other flexible option is tenable and there is a genuine need to move to this form of working arrangement. Second, where they have to be used, learn from best practice elsewhere. Third, the enforcing authorities must be alert and respond quickly wherever evidence of sharp practice and employers using the contracts to evade legal responsibilities comes to light.