Oxford University Press's
Academic Insights for the Thinking World

How alternative employment contracts affect low wage workers

Contemporary labour markets are characterised by more atypical or alternative work arrangements. Some of these – like independent contractors – have emerged in the context of self-employment, while others – like zero hours contracts and temporary work – are evolutions of traditional employment contracts. Irrespective of its form, the increase in atypical work has led to discussions of a trade-off between the potentially desirable flexibility it offers and the emergence of low-wage, dead-end jobs, characterised by considerably fewer employment rights and less job security than conventional forms of employment.

The rise of atypical work has been a key feature of the labour market of the United Kingdom in recent years.. One kind of alternative work arrangement that is increasingly common in the UK are zero hours contracts. Under such contracts, employers are not obliged to guarantee hours or times of work, and workers are – at least in principle – not obliged to accept work offered and are paid only for the work carried out. Almost a million people in the UK work like this today, compared to only two hundred thousand at the turn of the millennium. Many of these contracts are prominent in low-wage sectors of the economy, such as hospitality and social care.

How has this worked out? It turns out there’s a stark dichotomy between workers who are satisfied with their flexible working arrangement and workers who instead would like to work more hours. While almost a third of workers on zero hours contracts do it because they enjoy the  flexibility offered, a third work under such contracts because they can’t find jobs with a guaranteed number of hours. Another third work under such contracts in order to complement pay from other sources or earn money while studying. About half of zero-hours contract workers say they’re satisfied with their job, but 45% would like to work more hours and a more regular pattern of hours.

In Europe, the rise of alternative work arrangements is often seen as an expression of the segmentation of the labour market into two sectors. The primary sector is characterised by secure employment contracts and the secondary sector is characterised by less stable and less protected jobs. More stringent labour market regulations in the primary market – such as the imposition of a higher minimum wage – can lead to greater use of more flexible contract types. Do higher minimum wage rates lead companies to shift the composition of their workforce towards more flexible jobs by forcing employees into alternative work arrangements?

The adult social care sector (nursing home workers, in US terms) is a good place to see how this plays out. In April 2016 the UK increased the national minimum wage for workers aged 25 and over to £7.20 per hours – a sizable 7.5% increase over the previous minimum wage rate. The minimum wage is very important for workers in this field. It’s very low paying and almost 50% of workers there were affected by the introduction of the new wage.

The new national minimum wage had a strong positive impact on workers’ wages, with no detrimental effect on their employment opportunities. But firms also increased their use of zero hours contracts, in some cases quite dramatically. In particular, a domiciliary care worker (home care worker, in US terms) paid the minimum wage received a 7.5% increase in wage, but was also 6.1% more likely to be forced into working under a zero hours contract. It appears that firms try to deal with the wage cost shock from the minimum wage increase by employing contracts with substantial hour flexibility. This is likely to have occurred in other low-pay sectors of the UK labour market, such as hospitality and cleaning.

These results have an important bearing on policy making. The UK government has made a commitment to achieve a National Living Wage of 60% of the median wage by 2020. As a means of comparison, the median hourly wage in the UK was £14.40 in 2018. Under the 60% target, the minimum wage would have been £8.64 rather than £7.83. At the same time many policymakers and economists have expressed concerns about insecure working arrangements. Given their interaction with minimum wage policy, it is evident that trade-offs may surface unless legislation to regulate atypical work is introduced.

Featured Image Credit: Eggtimer by Storkman. Public Domain via Pixabay.

Recent Comments

There are currently no comments.