DP16843 Zero-hours Contracts in a Frictional Labor Market

Author(s): Juan J. Dolado, Etienne Lale, Hélène Turon
Publication Date: December 2021
Keyword(s): Flexibility, Gig economy, Working hours, Zero-hours contracts
JEL(s): E24, J22, J23, J63, L84
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16843

We propose a model to evaluate the U.K.'s zero-hours contract (ZHC) â?? a contract that exempts employers from the requirement to provide any minimum working hours, and allows employees to decline any workload. We find quantitatively that ZHCs improve welfare by enabling firms with more volatile business conditions to create additional jobs. While weaker than job creation, substitution effects â?? some jobs that are otherwise viable under regular contracts are advertised as ZHCs â?? are sizable and likely explain negative reactions against ZHCs. Our model also assesses increased labor-force participation from ZHCs which appeal to individuals who prefer flexible work schedules.