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Restricting Zero Hours Contracts won't increase job security

    The proposal today from Labour to give people who have worked on a zero-hours contract for 12 weeks the right to a regular contract is interesting but ultimately misguided. A flexible labour market is vital for a dynamic economy and it has kept unemployment lower than it otherwise would have been. However, job insecurity is still a real concern for many households. The problem is that the policy Miliband announced today could see employers simply terminating contracts after 12 weeks without doing anything substantive to improve general working conditions.

    It is worth putting things into context. There is not an epidemic of zero-hours contracts as Miliband has characterised. The ONS estimates that about 2.3% of workers are on such contracts, although the total number of contracts which are zero hours is nearer 6%. The CIPD last year estimated that it was nearer 3% of people working on such contracts. Either way, it is still a small proportion of the workforce. Also, the CIPD surveys of people working on zero hours contracts show that they actually feel less exploited and have a better job satisfaction and work-life balance (65% to 58%).

    People on a zero-hours contract work on average about 25 hours a week – not that surprising given that so many are actually students anyway. Indeed, more than a third of people on these contracts are aged between 16 and 24. This is three times the proportion of those not on a zero-hours contract. Interestingly, there is an increase in workers over 65 on the contracts too – which suggests they are supplementing their income in retirement.

    Employees do have the right to take or refuse shifts and for some people such as carers being able to switch between part-time and full-time work and having the freedom to take more or fewer hours can provide a very helpful flexibility. It is important to note also, that the ONS surveys show that 66% of people on zero-hours contracts don’t actually want to increase the number of hours they are working.

    The ONS is also at pains to point out that the reported increase in people working on these contracts is almost certainly in part due to greater recognition of the term “zero-hours contracts”. In the past, workers who were surveyed may not have recognised the term and so the total numbers may have been underestimated. Furthermore, the exclusivity clauses which prevented people working for more than one employer have now been banned anyway.

    Nevertheless, it strikes me that some of the flexibility provided by zero-hours contracts, such as being able to pop out to pick up your children from school, is actually quite desirable regardless of the type of contract; although of course not always practical. Also, it is quite clear that for some people with children, having no certainty over the number of hours that they can work that week is a problem.

    So to state the obvious, some people are working on zero-hours contracts because they want to and others because there is no available alternative – although this is perhaps not that obvious based on some of Labour’s tweets. For the former, there is no problem of job insecurity. For the latter, under Miliband’s policy they face the prospect of having their contracts terminated as the 12 week cut-off period approaches. Many will then probably be rehired anyway although some may find themselves without a job at all.

    The problem is that firms could begin to terminate the contracts of people who are actually happy working on the zero-hours contract as a precautionary measure. This could create more uncertainty and more difficulties for families. It is not always easy to forecast demand and for some firms whose work is variable or seasonal, zero-hours contracts make more financial sense. If this flexibility is that important for businesses, they will simply fire and then rehire.

    There is no compelling reason to suggest that businesses would give higher hours to those who they keep after 12 weeks and are given a regular contract. If businesses needed more work done they would just have given the employees more hours whilst they were on the zero-hours contract. Also, as mentioned previously, two thirds of workers on these contracts don’t actually want more hours.

    If there was no cost to businesses of hiring people on regular contracts, they would be doing it anyway. The value of Miliband’s proposal therefore depends on a guess. On the one side is the extra cost to business, plus the extra volatility and unintended consequences for workers. This needs to be outweighed by the other side which is the increase in certainty for the people who are kept on by the firm (or indeed charity or public sector) after 12 weeks and secure a regular contract. There are just too many potential losers and too few potential winners for that guess to be right. 

    Job security is a function of a number of factors including the state of the economy. Ultimately the best way to reduce the number of unwanted zero-hours contracts is to ensure that the economy continues to grow strongly. This should keep up demand for full time employees which should provide an alternative for the people who are on a zero-hours contract and don’t want to be.   

    Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

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