Zero-hours contracts — an obituary

Is it premature to write an obituary for zero-hours contracts? Perhaps. In Britain, the Labour Party, which has promised to put a stop to these employment contracts that don’t guarantee any hours of work, has not yet won power. Even if it does take over on July 4th, unions complain the party is already tiptoeing away from a complete ban. So, consider this an aspirational obituary: I think the UK should kill off zero-hours contracts. Let me explain why.

First, a quick word on scale. Some on the left overstate the size of the problem, citing a jobs market riven with insecurity. The latest official statistics suggest slightly more than 1 million people have zero-hours contracts in the UK, which accounts for just over 3 per cent of the working population. But a problem that does not affect everyone is still a problem for the people it does affect.

Let’s run through the arguments in favour of zero-hours contracts. Prime among them is the assertion that many people value the flexibility they provide to fit work around other commitments, such as university studies. Some real-world data might be of use.

Pub chain JD Wetherspoon, which employs roughly 43,000 people and has venues in Ireland, decided in 2016 to give its staff the option of a zero-hours contract or one with guaranteed hours. Some 54 per cent of its staff are under the age of 24. Yet according to Wetherspoon, 97 per cent of its hourly paid staff are now on a guaranteed-hours contract, while “a minority of employees prefers the flexibility of a contract with no minimum hours”. This is what economists might call a “revealed preference”.

Next is the idea that companies need these contracts to cope with uncertain demand and rising labour costs. I have sympathy with employers in sectors such as hospitality and social care. Margins are often thin and they have been expected to swallow a very sharp increase in the minimum wage since 2015. But Wetherspoon and others have demonstrated it is possible to offer staff more stability in spite of these constraints.

Amazon, for instance, does not use zero-hours contracts. It has recently introduced a flexible contract option that guarantees a minimum of 80 hours per month, with employees able to pick their shifts.

Finally, there is the fear of clogging up Britain’s flexible labour market, which has delivered high employment rates over the past decade. Here it’s helpful to look at countries that have banned or severely restricted zero-hours contracts, such as New Zealand, Germany and Ireland. None have suffered: the latest comparable OECD data has their employment rates at 79.8, 77.3 and 73.9 per cent respectively, compared with the UK’s 75 per cent.

Now to the “how”. The absolute worst way to ban zero-hours contracts would be to literally ban contracts that offer zero hours. If you don’t think employers would offer one-hour contracts the next day, I refer you to a story I wrote a few years back on one-hour contracts from Santander.

Other countries offer smarter examples, such as contracts that have to reflect the average hours a person actually works. Most are designed to preserve flexibility for both sides. New Zealand, for instance, allows genuinely casual work where the employee is free to turn the hours down.

Employment regulation should be used advisedly. But in this case, I think it is worth it. Last month, I interviewed a man in his late 20s who had been working in a warehouse on a zero-hours contract: “If the work was less, they kept sending messages, saying don’t come to work. You need to wait, every day, sometimes they cancel your shift when you are already on the way.” He worked like this for 3½ years, then one day, they told him there was no more work for him.

I could make an argument here about why treating him this way is bad for economic productivity or the welfare bill. But that would miss what I think really matters for most people, which is that workers on these contracts can be picked up and dropped as if they were commodities. At the beginning of the industrial revolution, this was widespread, and it led to huge strains in a society which, in the words of Karl Polanyi, “had forgotten the shape of a man”. It took “protective countermoves” such as the Factory Acts to shave off the market’s sharpest edges and save capitalism from itself.

Things are not nearly so bad now. Most of us have jobs that balance the needs of our employers with our needs as human beings for the stability to sustain homes and families. But zero-hours contracts allow a minority in society, often the lowest-paid, to be treated as commodities rather than people. That is an idea I would gladly put six feet under. – Copyright The Financial Times Limited 2024