Why the fuss about ‘zero hour’ contracts?

‘Zero hour’ contracts have been making headline news in the UK over the past month. The suggestion is that employers are exploiting workers desperate for any kind of job. But such arrangements are not new and the solutions being offered miss the point.

‘Zero hours’, or ‘nil hours’, is a colloquial term for an employment contract under which the employee is not guaranteed work and is paid only for the work he or she carries out. The worker is usually expected to be around when the employer needs him or her to work, but the worker can also refuse the offer of work. Frances O’ Grady, general secretary of the Trades Union Congress, has condemned zero-hours contracts, calling on the Lib-Con coalition government to ‘stop stripping workers’ rights’. Andy Burnham, the shadow health secretary, says he hopes that a future Labour government would ban them, while his colleague Chuka Umunna, the shadow business secretary, wants a ‘proper’ consultation exercise on the use of zero-hour contracts.

Others, though, have come to the defence of zero-hours contracts. John Cridland, director general of the Confederation of British Industry, said those complaining about these contracts need a ‘reality check’: ‘If we hadn’t had this flexible working when the economy contracted, unemployment would have topped three million – and it didn’t. It went to 2.5million.’ Mark Bateson, chief economist of the Chartered Institute of Personnel and Development (CIPD), said it was ‘too simplistic to dismiss such contracts as bad for the labour market or as the tool of greedy private-sector employers’.

So what is all the fuss about? Figures from the Office of National Statistics’ Labour Force Survey indicate that around 250,000 people (less than one per cent of the workforce) were on zero-hour contracts in 2012. This is about double the number in the mid-2000s, though not much different to the situation in 2000, when the number was 225,000. However, a survey published last week by CIPD put the figure for the number of zero-hour contracts today much higher – at about one million, or about three per cent of the workforce.

Zero-hour contracts may serve useful pragmatic purposes for both employers and employees. They allow greater flexibility for both, in that employers save money by not having workers sitting around being idle, being paid but not doing any work, while workers can decide when and if they want to work. But they also often mean that workers struggle to earn enough for a decent standard of living.

Whatever the exact prevalence of zero-hours contracts – and the real figures are probably closer to the CIPD estimates than the Labour Force Survey’s – they are not a particularly new phenomenon. Most locate the origins of zero-hours contracts in the early-1990s recession. But really, this sort of irregular and sporadic working practice goes back much longer, and has always been around to some extent in market economies. Zero-hours contracts represent just a new form of casual labour that in previous times was often hidden from the employment statistics as part of the black economy. People doing this sort of casual work got paid in cash, ‘off the books’. Now – symptomatic of our more regulated times – this relationship between employer and worker has been formalised into a contract.

And contrary to the idea that zero-hours contracts are some new expression of ‘fat cat’ aggressive bosses ruthlessly exploiting their workers, it is not just the private sector that uses them. In fact, the same CIPD survey makes the point that employers in the voluntary sector (34 per cent of them) and the public sector (24 per cent) were more likely to use zero-hours contracts than private-sector companies (17 per cent). Much to the embarrassment of Burnham and Umunna, no doubt, even some Labour-run local authorities use such contracts.

Most of the current discussion on zero-hour contracts misses the main point: the British economy isn’t providing enough well-paid, quality, permanent jobs for everyone who wants one. The CIPD figures revealed that zero-hours contracts were most common in the hotel, catering and leisure industry (48 per cent), education (35 per cent), and healthcare (27 per cent), and therefore not in what would usually be seen as the growth sectors associated with higher-quality jobs, such as pharmaceuticals, information and communication technologies, and advanced manufacturing. The use of zero-hours contracts is a symptom that too much of the economy is based on sectors where casualisation is prevalent. They are not the cause of worsening working conditions – that rests on the economic failure, over several decades, to invest for the long term in developing new productive sectors to provide enough decent, permanent jobs. The recession has also meant that more employers have gone into cost-cutting mode, something which is no doubt expressed in the rise in zero-hour contracts over the past five years.

This economic environment – the lack of good jobs for people and the protracted recession – is really an expression of the weakness of qualitative innovation and growth in the economy. The occupational structure of our workforce has changed over the past three decades, and for the worse for many people. There has been a decline in the number of skilled manual jobs in relation to unskilled jobs, from one in five to one in 10, and a rise in low-skill jobs in the categories known as ‘personal services and ‘sales and customer services’, from six per cent to 16 per cent. Sales and customer services, in particular, rely on the casualisation of labour – leading to more of the type of contracts being discussed today. Economic atrophy, not new employment contracts, has led to the growth in the phenomenon of ‘underemployment’, where jobs are available but provide insufficient hours to give people an adequate wage.

The weakness of the economy and the lack of investment are what we should be addressing. The debate should not be about banning particular employment contracts but about how to create an economy that can lift people from the lower end of the market to enable them to have decent jobs and living standards. The moralising discussion around zero-hours contracts is a distraction.

Para Mullan is a human-resources professional based in Britain.