Labour’s promise on zero hours contracts may result in a rise in unemployment

The run-up to an election can be relied on to generate ambiguously-worded promises that may or may not be delivered by the eventual winner.

One such is the promise in Labour’s manifesto to “ban exploitative zero hours contracts so that if you work regular hours you get a regular contract”.

This pledge has been truncated in some media to “ban exploitative zero hours contracts”.

Either way the pledge could be read in more than one way. Is it a complete ban on all zero hours contracts or is the key word here “exploitative”?

The fact is that a zero hours contract can be very useful, particularly for SMEs to justify employing staff. In a volatile market it gives a company flexibility and allows it to keep overheads as low as possible by tailoring the workforce to demand. Orders cannot be guaranteed and businesses will behave rationally. If they cannot use zero hours contracts then they have other alternatives such as overtime for existing employees, to simply not take on the work, to outsource it to low-wage or more flexible countries, or they can use agency-supplied workers.

There is one aspect of “exploitation” that does need to be addressed which is when an employer makes the contract exclusive to them thus preventing the employee from taking any other work to fill in the gaps.

It is acknowledged that there is an issue for employees due to the lack of a guarantee of a minimum level of hours. There is however a market for jobs whereby employees will weight up the wages and security offered by some employers against those of others and behave rationally. It is also why the market for jobs needs to be underpinned by an effective unemployment benefits system.

So what is Labour really proposing? To close the loopholes that allow exploitation by allowing workers to have more than one zero hours contract? To get rid of zero hours contracts all together, and replace them, with what? To limit them somehow, whether a maximum period of work, or by size of employer?

Absent all other factors, any major reduction in the use of zero hours contracts will result in a rise of unemployment. This may however be the real objective of Labour’s paymasters as it is believed that very few employees on zero hours contracts are members of unions.

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