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Monopsony - Pay Penalty for Zero Hours Contract Workers

Geoff Riley

30th December 2016

A new report from the Resolution Foundation finds a significant pay gap between workers on regular employment contracts and those on zero-hours (ZH) employment deals.

Nearly 900,000 workers - just under 3 per cent of the employed work force) are on zero hours contracts. They have been in the spotlight recently and caught up with the poor working conditions exposed at Sports Direct and JD Sports.

Whilst many of these jobs are concentrated in relatively low-paid jobs, the Foundation’s analysis compares the pay of ZHC and non-ZHC workers with similar characteristics and doing similar jobs. It does this by controlling for factors including the worker’s gender, age, experience, qualification level, their occupation, the industry they work in and how long they’ve been in their current job. These factors explain around four-fifths of the overall pay gap between ZHC workers and other employees.

This leaves a pay gap of around 20% - equivalent to 90 pence per hour.

To what extent is this explained by the monopsony power of large-scale employers such as Sports Direct and Amazon who use their "buying power" in the labour market to hold wages down?

Find more statistics at Statista

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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