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Zero hour contracts: no good for the economy

It’s no secret that here at Third Way we oppose zero-hours contracts. We don’t believe that contracts which allow employers to hire staff “on the lump” and which require people to be on call for work on the company’s whim are right or fair.

We have never believed that these contracts are good for the UK economy and in recent weeks that position has gained significant academic backing.

zerohoursA recent survey by the Chartered Institute of Personnel and Development (CIPD) found there were one million people in the UK on zero-hours contracts, which do not guarantee workers shifts or work patterns and they are expected to be available when the company or organisation needs them.

Research by the Recruitment and Employment Confederation of 600 employers found that more than one in four companies employs somebody on a zero-hours contract.

Now Professor Kim Hoque, a Professor of Human Resource Management at Warwick Business School, believes zero-hours contracts are actually a drag on the UK economy, which has managed to keep employment remarkably buoyant despite the economic slump since the financial crisis.

Professor Hoque said: “Zero-hours contracts could represent a drag on consumer spending and hence economic recovery. People on insecure zero-hours contracts are less likely to have the confidence to spend than people with more stable incomes.

“The flexibility they provide may well have enabled the UK to avoid higher levels of unemployment during the economic downturn. They may also have enabled some people to maintain an attachment to the labour market who would otherwise not have been able to do so. That said such contracts could also be seen as part of the wider underemployment problem that has affected the UK economy in recent times, with large numbers of workers on part-time or casual contracts wanting to work more hours but being unable to do so.

“Hence, while unemployment has remained lower than many economists predicted would be the case, underemployment has been high – and zero-hours contracts may be a significant part of this picture, and so impacting on consumer confidence and spending.”

Professor Hoque believes more research on zero-hours contracts is needed, especially as they are becoming more prevalent in the public sector.

“There is a need for a more detailed review of the extent and impact of such contracts,” said Professor Hoque, who has undertaken consultancy projects for the CIPD, Shell UK, NHS Scotland plus the UK Commission for Employment and Skills and is currently a project adviser to the Japan Institute of Labour Policy and Training.

“What is notable is that the CIPD’s figures showed that zero-hours contracts are becoming even more widespread in the public sector than the private sector. While 17 per cent of private sector organisations in the CIPD’s research stated that they used such contracts, the figures were 34 per cent for organisations in the voluntary sector and 24 per cent in the public sector.

“This is more than likely a reflection of the increasing pressure local authorities are under to respond to budget cuts, requiring even tighter tenders for outsourced contracts, for example.”

Official figures analysed by the Resolution Foundation showed that zero-hours workers earned an average of £9 an hour, compared with £15 for other employees and Professor Hoque believes these contracts will eventually affect a company’s productivity and performance.

“From the employer’s point of view zero-hours contracts provide ultimate labour flexibility, enabling them to keep labour costs down by matching staffing to demand as closely as possible,” said Professor Hoque.

“While this clearly has significant cost saving potential in the short-term, it is difficult to see how businesses can build motivated workforces that are committed to the goals of the business when they are employing staff in such a manner.

“The growth of such contracts is perhaps testimony to the extent to which employers have focused more in recent times on squeezing the wage bill rather than responding to attempts to encourage them to seek greater employee engagement.”

Professor Hoque added: “Union leaders have called for zero-hours contracts to be outlawed entirely, with Dave Prentis, general secretary of Unison, arguing that such contracts hark back to the times when people would stand at the factory gates waiting to be picked for a day’s work. He has also highlighted that many people on zero-hours contracts are on the lowest wages in the economy, making them the least able to cope with financial shocks such as a cut in hours from one week to the next. Zero-hours contracts also make financial planning all but impossible. It is difficult to get a loan, a mortgage, a credit card or a tenancy agreement if you are not able to provide proof of earnings.” David Kerr, President of the Solidarity Union backed Dave Prentis: “These contracts are an affront to the dignity of the worker”.

Professor Hoque stated: “Given how far the benefits of such contracts are weighted towards employers, this is testimony to where the balance of power in the employment relationship lies. Employees have no means by which to resist such contracts – given the weakness of unions in the private sector in particular – and the only option for many to such contracts is the prospect of unemployment.”

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