During Manchester Policy Week 2013, Professor Jill Rubery joined IPPR North and members of the public to discuss the increasing use of zero hours contracts. In this article she explores some of the issues that arose from that event, and argues the key policy issue is how to get employers to accept more responsibility for the real costs of labour.
We take the notion of a job for granted. It is what the unemployed are told to go out and find – even if instead of ‘getting on a bike’ they are now expected to spend 35 hours a week searching for jobs online at Job Centres.
Quitting a job also carries penalties. If you’re unhappy at work you’d better get a new job before quitting or be willing to wait several weeks for benefits. But what does it mean to quit a zero hours job and how do zero hours jobs fit into this notion of a job as an alternative to benefits?
Back in the 1990s it became clear that there was a structural problem with the labour market in that most jobs available to be filled by the unemployed were part-time jobs paid at low wages. These were hardly attractive to the unemployed – in short it did not pay to work.
Along came Gordon Brown’s working tax credits to fix the problem, by topping up wages to match and exceed what individuals or families could get on benefits. Yet for jobs to qualify they had to guarantee at least sixteen hours of work a week.
Now we have a new problem that many of the jobs available in service industries – the most likely to grow and absorb the unemployed – are being constructed on a zero hour basis and hardly offer a viable alternative to benefits; they might provide work one week but not the next week.
Currently the unemployed are not obliged to take a zero hours jobs – or at least that is what Lord Freud said though Duncan Smith was less clear in his answer – but many of the unemployed may be tempted to risk it anyway as anything may be better than spending 35 hours in the Job Centre (at least that is what the government is hoping the reaction will be).
The problem is that the newly employed person faces severe financial risks. What might happen if they are not offered enough shifts on a zero hours contract to survive?
In principle they can sign on if temporarily laid off but the hassle of so-doing perhaps every other week makes this hardly feasible. Also signing on implies willingness to be available for and to look for all other forms of work, which is likely to make them unavailable for work if a shift is actually offered by their zero hours employer.
Universal Credit will – if it ever is implemented- make things potentially simpler for the unemployed person but the implications for the tax payer are unclear. Gone will be the 16 hours threshold before a job counts for tax credits.
However, this kind of flexible credit may well encourage even more firms to put all the burden of flexible demands onto the tax payer. We may see employers varying hours of paid work for their employees as they know that the gap between what they are paying and what the person and/or their family need to live on will be made up through the tax credits.
But welfare recipients working less than full-time will also have to spend their available time looking for extra work, which again might make them unavailable for the variable shifts associated with zero hours. So either the state will be bailing out the employers of those on zero hours contracts by topping up wages, or the universal credit conditions will make it impossible for those eligible for the credit to take on such jobs.
The key policy issue is how to get employers to accept some more responsibility for the real costs of labour. The first thing to do is to stop subsidising employers who provide short hours or low paid jobs by allowing them not to pay national insurance contributions on the first £109 of wages.
Employers’ national insurance contributions could be converted into a flat levy on their total pay bill. This would give us not only have a more level playing field among employers but we could also use the levy to incentivise employers to be more responsible by imposing penalties for zero hours or tax reductions for guaranteed hours. In short we need to find new ways to make employers pay for the costs of their flexible demands.
Another possibility is adding a supplement to the national minimum wage as applies in Australia or introducing a minimum work period. Another innovation could be a rolling contract to limit wild fluctuations in earnings; for example employers could be required to guarantee hours for a current three month period equal to at least 80 per cent of the hours worked in the previous three months to provide employees with some security. This would still allow some flexibility to deal with peaks and troughs.
Average hours should already be monitored to comply with restrictions on long hours under the working time directive. Here the focus would be on restricting the offer of too few hours. Alongside new measures, enforcement of existing rights could be improved; for example payment of holidays and the right for benefit recipients not to have to take a zero hours job.
If we seriously want to move people off benefits to reduce risks of long term poverty then it is vital that new jobs are not constructed in ways that either exclude the unemployed or put all the costs onto the state.
We need new levers to change the behaviour of employers – but actions to restrict the freedoms of employers have become the new taboo. Moreover, if work is increasingly organised on a spot contract basis, the more we will be told that a welfare state is not affordable.
Actions to end the spread of zero hours contracts are thus essential if the notion of a job is to retain its meaning and if we are to continue to provide some security to those without a job.
