By Eric Crampton 04/02/2015

The Labour Party’s come out against zero-hour contracts: an employment practice where employees have to be on call for what shifts might come, but with no particular guarantees of how many hours might come or when those hours may be required.

Jim Rose discusses things in a four-post series, which takes a more academic take on the question.

Here, Jim argues that a good start would be reckoning why employers and employees would agree to the deal in the first place. Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a per-hour premium if zero-hour contracts are a hassle for workers. If we see zero-hour contracts in Christchurch, for example, I don’t think we can first-cut look to power as the answer: plenty of labour demand there.

In the second part, Jim notes that the fixed costs of employment are such that you shouldn’t expect zero-hour contracts: you’ll typically do better with one 40-hour worker over two 20-hour workers barring some kind of mandatory benefit for 40-hour workers. I don’t think there’s any set benefits threshold that obtains for 0-hour contract workers as compared to 20-hour workers though. Each additional employee means recruitment, overhead, HR and training costs; why pay all that out on somebody who might only work 3 hours a week?

You might do it if there are strong and somewhat unpredictable fluctuations in product demand. Jim notes premiums for part time jobs in seasonal industries; I’d also expect some of those employers could also see advantages of zero-hour contracts. If it’s raining, you’re less likely to send a team of fruit-pickers out; when it’s sunny, you need all hands on deck. Jim expects, rightly I think, that zero hour contracts would be most likely in jobs with low recruitment costs and where specialised training needs are low. While you might think that could point to potential power issues, think twice: specialised skills can be more likely to make you beholden to particular employers.

In part 3, Jim expects workers with low fixed costs of working will flip into the zero-hour sector while those with higher fixed costs would prefer lower hourly rates but more guaranteed hours. Again, read “lower” here as meaning “relative to what they could elsewhere earn”.

Finally, Jim relates all this back to problems of team production.

Jim makes one big and important point in all this: unless we have a good idea about why firms are moving to this contract structure, and why employees are sticking with it rather than flipping instead to other employers, meddling in the arrangements via policy is pretty risky.

0 Responses to “Zero-hour”

  • Speaking as an HR practitioner, I’d venture that employees enter these agreements because they are either:
    – desperate for work of any kind,
    – uncaring about the job and therefore as inclined to turn it down or not attend as the employer is to not offer work
    – ignorant of the actual implications and self-deluding about the real amount of work and/or the real inconvenience they will have.

    Likewise, I observe that employers write and propose these agreements (its telling that it rarely comes from the employee) because they:
    – assume it will allow them to make savings that in reality they are too ill-disciplined to achieve
    – want to play employees off against each other and increase or decrease work availability to match their perception of the employees compliance because they lack the skill to performance manage and/or train properly
    – its fashionable
    – they actually have highly variable low skill roles that require immediate access to people who are so unskilled they are generally available to respond.