Flexibility or certainty? The aggregate effects of casual jobs on labour markets

There is much debate about the extent to which governments should regulate labour markets. One discussion concerns casual jobs, where firms do not need to guarantee workers certain, fixed, hours of work and instead "call-up" workers as and when needed. These jobs, sometimes known as "zero-hours", "contingent" or "on-demand", provide flexibility for firms to change the size of their workforce cheaply and quickly and for workers to choose whether to supply labour in every period. This flexibility comes at the expense of certainty for both firms and workers. In this paper I develop a search and matching model incorporating casual jobs, which I use to evaluate the effect of labour market policies on aggregate outcomes. I find that a ban on casual jobs leads to higher unemployment, but also to higher production and aggregate worker utility. I also consider the effect of a higher minimum wage for casual jobs. I find that the effects are limited. These results are due to an offsetting mechanism: although higher wages lead to higher unemployment, as firms offer more full-time jobs, the number of workers actually called-up to work increases.