Zero-hour contracts a “drag on the economy”

Posted on 17 Sep 2013 by Callum Bentley

A Professor of Human Resource Management at Warwick Business School has claimed zero-hour contracts are detrimental to the UK economy, following a report by the Chartered Institute of Presonnel Development.

The survey found there were one million people in the UK on zero-hour contracts, which do not guarantee workers shifts or work patterns and who are expected to be available when the company or organisation needs them.

Professor Kim Hoque, from Warwick Business School, believes zero-hours contracts are actually a drag on the UK economy, which he says has managed to keep employment remarkably buoyant despite the economic slump since the financial crisis.

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.

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 said he believed more research on zero-hours contracts was needed, especially as they were 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.

“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. Professor Hoque said he believed these contracts would 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.”