How zero-hour contracts impact productivity

Zero-hour contracts have been around for decades, but it’s only in the last few years they’ve made headlines. When the recession hit and businesses looked to reduce employee costs, zero-hour contracts suddenly became a very attractive solution.

By 2013, the number of 16- to 24-year-olds in this type of work more than doubled in five years. Last year, the number of people of all ages working on zero-hour contracts surged by 13% over the previous year. Today, nearly 1 million workers rely on this type of work, the ONS reports. That’s roughly 3 to 4% of the UK’s entire workforce.

But how do zero-hour contracts impact productivity? There are no cut-and-dried statistics to tell us, but we can look for hints in the Financial Times: “workplaces using zero-hours contracts have a higher proportion of low-paid staff than those which do not.”

The sectors with low-paid staff, as defined by the Institute for Public Policy Research (IPPA), include retail, accommodation, food and administrative services. The ONS reveals that retail employs 8.4% of the UK’s zero-hour workers. Hospitality accounts for 22% of all zero-hour workers. The low-wage sectors collectively produce 23% of the UK’s GVA, yet on average, they are 29% less productive than the economy as a whole, reports the IPPA.

Are zero-hour contracts the reason for low productivity? Some say ‘yes’. Talking about these contracts, John Philpott, director of the Jobs Economist consultancy, told the Financial Times: “The ready supply of workers for low-paid, low-skilled jobs means employers are able to operate on a business model that has a high turnover of staff and compete on low cost and low value. But this business model is holding back productivity and the economic recovery.”

According to the Resolution Foundation think tank, “Zero-hours contracts … have a negative effect on staff morale, teamwork and productivity in a way that leads to a poorer quality service.”

HR Magazine notes the hours worked under zero-hour contracts, which averaged 31 hours per week in 1997 and 21 hours per week in 2012. Today, the average is 25 hours. They point out that the growth in zero-hour contracts, coupled with the hours worked, may explain “two important economic indicators: namely the lack of a major rise in unemployment, despite the poor macro environment, and the absence of an increase in productivity.”

The University of Warwick also points a finger at zero-hour contracts for the UK’s poor productivity, calling it ‘a drag on the UK economy.’ The advantages these contracts offer businesses, ‘if founded, do not outweigh the drawbacks they bring to the economy and those in the labour market.’ According to the Resolution Foundation, zero-hour workers earn an average of £9 an hour, compared to £15 for employees.

For some workers, zero-hour contracts are ideal, allowing them to fit work around studies, child care or other commitments. Businesses get a flexible workforce and help with unexpected staff shortages. But the cons include the time needed to monitor workers’ hours, the fact that workers can refuse to work when called and the conflict of interest that might arise – what if the worker also puts time in for competitors?

The Telegraph cautions employers with this advice: “While [zero-hour contracts] may help businesses to cut costs in the short-term, the use of the contracts should not be prolonged. It is essential that agile, forward-thinking businesses begin to move to a more positive way of managing their staff.”

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