14 June 2013updated 26 Sep 2015 1:17pm

Workers can’t pay the costs of zero-hour contracts

It's naive to pretend there are no benefits, but too often only the employers get them.

There are two opposing positions on zero-hours contracts. For some, these contracts represent the unacceptable face of a flexible labour market. By offering work only when the employers needs them, they are a new form of exploitation, taking advantage of workers in a difficult labour market. Yet for others, zero hours contracts are a necessary part of the economy, providing flexibility for workers to balance work with study, caring or their home life.

Labour are in the former category, with Andy Burnham suggesting they should be banned. Many recruiters are in the latter, arguing that without zero hours contracts, unemployment would be much higher. We are yet to see what Vince Cable – who today announced a review of these contracts – thinks, and there is still discussion about the extent to which they are a problem (The Work Foundation is holding an event on this topic in July).

But what is striking about the zero hours debate is how little we know about them. We do know that they are a small part of the labour market – but one which is growing and spreading. In 2007, around 130,000 people were employed on them. This has risen to 200,000 according to the latest figures. This figure is small (less than 1 per cent of the labour market) but probably an underestimate (many do not realise they are on zero-hours contracts). We also know that zero hours contracts are more prevalent in sectors like hospitality and care, but that they are potentially spreading into middle-class professions such as university teaching.

The rest of the evidence is anecdotal. While zero hours contracts can be practical for students looking for some cash on the side, they can be extremely difficult for workers reliant on an erratic income. This uncertainty has other consequences, with anecdotal evidence that they lead to some “sharp” employment practices. For example, without fixed hours, workers are less likely to speak up for their rights or join a union. A lack of training and a “casual labour” attitude can restrict progression, leaving people stuck in dead-end jobs.

And there is one important question we are yet to find an answer to: whether the recent rise in zero-hours contracts is a short-term effect of the recession, or a long-term change in the labour market.

So zero-hours contracts are a mixed bag. But what can Vince do about it? Given that these contracts are important for so many people, banning them seems draconian. So measures are probably needed in two areas. First, we need to intensify efforts to ensure that employers who abuse these contracts don’t get away with it. Yet, given our poor record on enforcing the minimum wage, it is hard to be confident that this will happen.

Second, efforts are needed to provide support for people on the sharp end of zero hours contracts. New tax credits to help them achieve a reasonable income are an important potential solution. And the design of the (increasingly) long-awaited Universal Credit will also be important.

The UK has – relative to most countries – an extremely flexible labour market. For the most part, this is a good thing, keeping employment relatively high. But it does come with costs, and we haven’t always been good at managing these. Zero hours contracts are the latest such labour market problem, with both costs and benefits. The challenge for Vince is to keep the benefits, but make sure workers don’t pay the cost.