Why zero-hours contracts are better than you think

Zero-hour contracts are often vilified by the left. They conjure up a picture of all workers having no fixed employment, being at the beck and call of their bosses, and living hand to mouth. The reality, however, is very different. 

Firstly, only 2.7 per cent of people in employment are on zero-hour contracts, with the proportion peaking in 2016 before falling (although it has made a bit of a bounce-back in the last 12 months).

Secondly, 57.6 per cent of people on zero-hour contracts are satisfied with the amount that they work: It is misleading to suggest that all zero-hours employees want to work full-time, or longer hours.

In 2019, 16 per cent of those on zero-hour contracts’ working hours were zero. Of these, however, 40 per cent were because they were on holiday and 6.25 per cent because they were sick or injured.

Thirdly, of the 26.5 per cent who are underemployed, 18.2 per cent want more hours in their current job, 2.5 per cent want an additional job and 5.8 per cent want a replacement job with more hours.

Zero-hour contracts, therefore, are not working for 0.71 per cent of those in work. It is important to see the small scale of the problem rather than pushing an inflated, emotional argument that Labour and the media are guilty of.

It is likely that many in the 5.8 per cent group are in quasi-frictional unemployment, taking a temporary job while they look for another. An increase in the availability of information on jobs through sites such as Reed help this group, as well as those 2.5 per cent who want an additional job.

A policy which could help might be retraining vouchers, an idea floated by the Lib Dems in some form in their proposed Personal Education and Skills Account.

These vouchers could also be used to help improve the skills that people already have, thereby improving the marginal revenue product of those 18.2 per cent who want more hours such that their labour is demanded more and they are employed for a greater quantity of hours.

However, it is important not to ignore the wider picture. Ironically, there are many great policies that would likely increase the number of people who would want to work more hours on zero-hour contracts. Currently, those on Universal Credit face a marginal tax rate of 75 per cent (as for each £1 extra they earn, 63p is taken off their benefits and 12p goes towards national insurance).

Reducing the Universal Credit structure so that only 50p or even less was taken off for each £1 you earn (as has been suggested by the Centre for Policy Studies) would likely increase the number of people on zero-hour contracts who would like to work more hours.

The benefits of this policy must be kept in mind. Zero-hour contracts increase freedom of choice for both employers and employees in organising their labour. For the employer, it gives greater flexibility for buying labour that they actually demand.

For workers, it gives greater flexibility in selling their labour in a way they actually want to supply it. It is useful for students who want to spend a few spare hours earning some extra money to keep them afloat or to afford a few luxuries.

Indeed, 16-24-year olds make up 36.8 per cent of those on zero-hour contracts. With 29.13 per cent in 50+ category as well, the majority of those on these contracts are groups unlikely to have dependants. 

Zero-hour contracts are neither evil nor exploitative, as many would lead you to believe. They give opportunities to many who are in circumstances not favourable to a conventional nine-to-five job.

At the end of the day, however, it is about choice; there is no compulsion to work in a zero-hour contract job. Workers are free to work in a non-zero-hour contract job, just as 97.3 per cent of those in employment currently do.

Banning zero-hour contracts would reduce the flexibility of the labour market and take away choice for both employers and workers. Let’s not forget the great results that choice in free-market can and does deliver to those on both sides of exchange.

Written by Charlie Paice

Charlie Paice is a Research Associate at the Adam Smith Institute.
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