Are Estimates of Non‐Standard Employment Wage Penalties Robust to Different Wage Measures? The Case of Zero‐hour Contracts in the UK

Egidio Farina,Duncan Mcvicar,Colin Green

doi:10.1111/irel.12284

Abstract

Evidence suggests that non‐standard jobs are associated with wage penalties. Yet, these jobs possess a range of undesirable characteristics that should generate compensating wage differentials. This evidence relies on derived wage variables, prone to measurement error likely to be correlated with employment contract. Stated‐rate hourly wage questions are not subjected to the same measurement issues. Using zero‐hour contracts in the UK, we show that there is no conditional average ZHC wage penalty once stated‐rate hourly wage measures are used. We discuss implications for policy.

Highlights

Across a range of developed economies, there have been substantial increases in the share of workers in what can be described as non-standard employment arrangements (Katz and Krueger 2019).1 The specific form of these contractual arrangements is heavily dependent on country-specific institutional and legal frameworks, but a common feature is a reduction in job security often combined with greater hour variability.9600 Garsington Road, Oxford, OX4 2DQ, UK
Using zero-hour contracts in the UK, we show that there is no conditional average ZHC wage penalty once stated-rate hourly wage measures are used
In contrast, that there is no conditional ZHC wage penalty, on average, when using the stated-rate hourly wage measure

Summary

Introduction

Across a range of developed economies, there have been substantial increases in the share of workers in what can be described as non-standard employment arrangements (Katz and Krueger 2019). The specific form of these contractual arrangements is heavily dependent on country-specific institutional and legal frameworks, but a common feature is a reduction in job security often combined with greater hour variability. This wage penalty literature, including that for ZHCs, typically relies upon wage information that is derived from survey responses to questions on earnings and hour data, and these are prone to measurement error (for examples of such studies, see Booth et al 2002; Forde and Slater 2005; Hagen 2002; Lass and Wooden 2019; Mertens et al 2007; for a discussion of measurement error in derived hourly wages, and its econometric consequences, see Bound, Brown, and Duncan 1994).2 If this measurement error is uncorrelated with employment contract it may lead to imprecise estimates of contractual wage penalties, it will not bias estimates. Respondents are able to choose up to three options, with ZHCs

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Results

Discussion and Conclusion