Why do flexible work arrangements exist?

This paper studies flexible work arrangements, with a focus on zero-hours contracts (ZHCs). Leveraging a unique dataset from a large UK firm in the low-pay sector, it provides novel descriptives on ZHC workers, as well as evidence on demand and supply side mechanisms for the use of ZHCs. The results show that ZHC workers experience significantly higher turnover rates and lower wages than permanent employees, and large heterogeneity in hours and earnings volatility. Causal evidence on the firm demand-side demonstrates that ZHCs help firms manage production and demand shocks. On the supply-side, ZHC roles attract 25% more applicants than comparable permanent jobs. ZHC roles are concentrated among specific demographics, and vacancy applicant and firm offer data demonstrates this is supply driven. Few ZHC workers apply for permanent positions and their decision to apply for a permanent position is wage insensitive. In contrast, permanent workers exhibit ZHC-wage elasticities that are an order of magnitude larger than those of their ZHC counterparts.