CFCM Seminar: Helene Turon (Bristol University)

Zero-hour contracts in a frictional labour market (with Juan Jose Dolado and Etienne Lalé)

Abstract: We develop an equilibrium search and matching model to evaluate the pros and cons of zero-hours contracts (ZHC), i.e. a labor contract where employers are not obliged to provide any minimum working hours, and workers can decline any work offered. Our model emphasizes three channels through which ZHC affect labour-market equilibrium outcomes. First, a job-creation effect, as firms endowed with more volatile technologies can enter the market and/or are able to post more vacancies using these flexible contracts. Second, a substitution effect, whereby jobs that are otherwise viable under regular employment contracts become advertised as ZHC. Third, a participation effect, as workers who prefer flexible work schedules join the labor market to take advantage of ZHC. We calibrate our model to UK data and policies to assess the impact of ZHC on equilibrium allocation and welfare through each of these channels. Finally, we analyze sorting between different types of workers and firms using either type of contracts