Thursday 29 January 2015


The Labour Party's come out against zero-hour contracts: an employment practice where employees have to be on call for what shifts might come, but with no particular guarantees of how many hours might come or when those hours may be required.

Jim Rose discusses things in a four-post series, which takes a more academic take on the question.

Here, Jim argues that a good start would be reckoning why employers and employees would agree to the deal in the first place. Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a per-hour premium if zero-hour contracts are a hassle for workers. If we see zero-hour contracts in Christchurch, for example, I don't think we can first-cut look to power as the answer: plenty of labour demand there.

In the second part, Jim notes that the fixed costs of employment are such that you shouldn't expect zero-hour contracts: you'll typically do better with one 40-hour worker over two 20-hour workers barring some kind of mandatory benefit for 40-hour workers. I don't think there's any set benefits threshold that obtains for 0-hour contract workers as compared to 20-hour workers though. Each additional employee means recruitment, overhead, HR and training costs; why pay all that out on somebody who might only work 3 hours a week?

You might do it if there are strong and somewhat unpredictable fluctuations in product demand. Jim notes premiums for part time jobs in seasonal industries; I'd also expect some of those employers could also see advantages of zero-hour contracts. If it's raining, you're less likely to send a team of fruit-pickers out; when it's sunny, you need all hands on deck. Jim expects, rightly I think, that zero hour contracts would be most likely in jobs with low recruitment costs and where specialised training needs are low. While you might think that could point to potential power issues, think twice: specialised skills can be more likely to make you beholden to particular employers.

In part 3, Jim expects workers with low fixed costs of working will flip into the zero-hour sector while those with higher fixed costs would prefer lower hourly rates but more guaranteed hours. Again, read "lower" here as meaning "relative to what they could elsewhere earn".

Finally, Jim relates all this back to problems of team production.

Jim makes one big and important point in all this: unless we have a good idea about why firms are moving to this contract structure, and why employees are sticking with it rather than flipping instead to other employers, meddling in the arrangements via policy is pretty risky.


  1. I have considered whether another reason for zero hour contracts might be as an alternative to more flexible employment conditions. In short, if you have the option to give one of your employees zero hours consistently, you might not have to fire him. And firing staff can be a significant problem. So, if you were perhaps a McDonalds franchise, you could just hire a bunch of students, put them all on zero hour contracts, and then give the most hours to the best workers. The ones who never get any hours would presumably quit after a while.

  2. Once upon a time I worked in a "0 hours contract". It rather suited everyone as it was an outdoors job and difficult to get much done in rainy weather. So, on a wet day the boss did not have to pay me, and I did not have to soaked - I think it suited us both although probably illegal at the time. As I understand the main problem in some overseas places are those contracts which forbid the employee from doing anything else if they are not working for the employer?

  3. The only 'solution' to outlawing zero-hour working contracts, is for businesses to either close-up shop or pay their staff less overall to compensate greater costs.

    Because it will mean all hands have to be on deck for even when they're not really needed, and that cost must likewise be compensated.

    When will the political left get it? No free lunch.

    What Andrew Little should really be preaching--if he's honest about achieving a better NZ for the poor(er)--is ACT policies. Alas, he can't! He's Labour :(

    Economic growth in a respectably tight job market solves ALL the real problems.

  4. Lovely story about the advantages of zero hours contracts, especially when it's wet. I hated playing cricket in the wet.

    Many contracts contain a restraint of trade clause, either explicitly or implicitly in terms both not working for the competition, or simply not showing up from work exhausted from your last job earlier that day.

    People will sign these if the wage premium may get offsets the disadvantage of giving up the option.

  5. That is one of the objections raised to zero hours contracts.

    The point is, if you're not getting much work from an existing employer for whatever reason, you will quit and goes elsewhere.

    Zero hours contracts are most common in sectors with high job turnover in any case.

    The restaurant sector and similar retailing area welcomed 90 day trials when they are introduced because the turnover is so high of employees in that sector that fewer than normal establish regular pattern of employment and in jobs in which there were in long enough to build up sets of referees for job applications in the future in the way people with regular office jobs at the same employer for several years do.

    The 90 day trial period was an alternative to not hiring someone who changed jobs a lot recently. Who gains from that?