Are zero hour contracts good for the UK?

Guest blog by Mohammed Ibrahim

Zero-hours contracts, also known as low-hour contracts, enable employers to hire staff without the contractual guarantee of a fixed number of hours work. 697,000 people were employed on zero-hour contracts as their main source of income between October and December 2014 (ONS).  This represents 2.3% of the UK workforce’ (BBC, 2015).  Partly due to greater economic uncertainty there are likely to be many more people working these contracts in the future.  Whether zero-hour contracts are good for the UK depends on many factors.

What are the advantages and disadvantages for employers? The key word is ‘flexibility’. For sectors such as the hospitality and stewarding sectors, there are minimum numbers of staff required for health and safety regulations. Staffing levels in many businesses fluctuate with demand for their goods and services. Without zero-hour contracts, employers would have to appoint more full-time staff to ensure the safe running of events. This can be costly, especially when taking into account training and benefits such as pensions and holiday pay. Zero-hours contracts also allow employers to get people in at short notice in case of employees calling in sick or not turning up. The lack of flexibility in traditional contracts may increase the cost of employing people and thus reduce profits and could ultimately lead to these types of firms, (firms who rely on zero-hour contracts) going out of business. However, in retail for example it can be more costly to hire zero-hour contract staff. This is because training staff can be expensive and with zero-hour contracts, there is no guarantee that workers will accept the shifts employers offer them.

​Many people view zero-hour contracts pessimistically, I mean when does the employee really benefit?  Surely, most workers prefer guaranteed, scheduled work and to be paid more than the minimum wage. On average zero-hour contracts provide 'about 25 hours work a week, compared with the 37 hours average for all people in employment in October-December 2014’ (The facts about zero hour contracts, 2015). Twenty five hours a week part-time work might be more acceptable if the employee has voluntarily chosen to work that much. However, part-time is often involuntary, i.e. individuals want full-time work but have to settle for part-time. This is the case with’ 34% of workers on zero hour contracts wanting more hours in October-December 2014’ (The facts about zero hour contracts, 2015). You could argue that this really is an unemployment statistic which isn't talked about much in the media or by government, especially since many of these people are living with less than the living wage. If you combine the low number of hours employed with periods of less economic inactivity, e.g. Spring, it is difficult for some workers to make ends meet.  

When demand for consumer goods is high for example at Christmas, more staff are required. Zero-hour contracts can eliminate uncertainty for employers as companies can simply reduce the amount of hours staff work in periods where there is less economic activity and increase the amount of shifts during periods of increased economic activity. However, workers are also consumers, if zero-hour contracted staff do not get enough hours, then they may have to reduce their consumption and instead save. Economic uncertainty brings about lower consumer confidence and other macroeconomic consequences, as consumers may feel less inclined to spend. Reduced spending can also increase prices in the medium term as there are less economies of scale afforded by retail, transport and manufacturing. A reduction in consumer spending can result in a reduction in investment by employers. This is because businesses experience a drop in demand for their goods or services and therefore reduce staff levels to match.

In theory, a student would prefer a zero-hour contract as they need the flexibility to fit work around their studies. Circumstances are an important factor for staff choosing to work a zero-hours contract. However, someone who requires a certain amount of income in order to pay for bills (rent and utilities) may not necessarily want a job where there is no guarantee of shifts.

Zero-hour contracts on average result in lower hours worked per week than full-time staff. Interestingly, this can be positive because people are more productive when they work less hours. If we compare the UK to France, ‘UK workers produced on average between 27% and 31% less per hour than workers in France and Germany’ (Jenkin, 2015). This is despite the fact that the average UK worker works longer hours, workers in the UK also receive on average a lower wage. A move to a zero-hour contract for the majority of the country could result in a more productive economy. On the other hand, zero-hour contracts usually offer low job security as employers are not legally forced to offer shifts to staff. Some argue that if job security is higher then ‘people are more likely to stay with the same employer for longer, leading to a better understanding of the company’s needs and greater confidence in the role’ (Jenkin, 2015). 

Zero-hour contracts do have benefits to the individual, employer and economy, however, they are really tailored to the employers, through flexibility when taking on staff. The real losers are the employees as many of their rights, e.g. right to ‘X’ amount of hours a week are exclusive to full-time workers. Whereas the employers can pick and choose their workers, reducing the risk of employing one full-time staff and realising that they were not the best worker, instead they could recruit a number of workers and only offer their shifts to those who they think are the most efficient worker. Once again, the term ‘flexibility’ is key to the economy, ‘flexibility is envied by employers in struggling economies such as Spain and Greece’ (BBC, 2015). The rigidity of the employment laws in these countries means that when there is an economic downturn, for employers simply reducing staff is not so easy. One question remains, are zero-hours contracts a good idea for the UK economy? Overall I think zero-hours contracts are bad for the UK economy in the long term because of reduced job security and the damage to consumer confidence which we rely on for growth.

Many thanks to our guest blogger Mohammed Ibrahim

References

1) ONS The Office for National Statistics
2) BBC (2015) Q&A: What are zero-hours contracts?. Available at: http://www.bbc.co.uk/news/business-23573442 (Accessed: 18 October 2015).
3) Jenkin, M. (2015) Why are French workers more productive than Brits?. Available at: http://www.theguardian.com/small-business-network/2015/jul/13/french-workers-more-productive-brits (Accessed: 18 October 2015).
4) The facts about zero hour contracts (2015) Available at: https://fullfact.org/article/zero_hour_contracts-38391 (Accessed: 18 October 2015).