Employment Adjustment and Part-Time Jobs: The US and the UK in the Great Recession

Abstract

We document a new fact about the cyclical behavior of aggregate hours. Using microdata for the US and the UK, we show that changes in hours per worker are driven by fluctuations in part-time employment, which are in turn explained by the cyclical behavior of transitions between full-time and part-time jobs. This reallocation occurs almost exclusively within firms and entails large changes in employees' schedules of working hours. These patterns are consistent with the view that employers adjust the hours of their employees in response to shocks, and they partly account for the poor recovery that followed the Great Recession.

How Bad is Involuntary Part-Time Work?

“…Moreover, the assumption seems reasonable for the U.S. labor market: a few states operate short-time compensation programs but the take-up rates for these benefits are typically low (Abraham and Houseman, 2014). 5 To our knowledge, the main exceptions to this somewhat sweeping summary of the literature are the early papers by Stratton (1996) and Barrett and Doiron (2001), the article by Cajner et al (2014) and Borowczyk-Martins and Lalé (2014). Stratton (1996) uses March CPS data to compare average one-year-apart transition probabilities from unemployment, non-participation and voluntary part-time employment.…”

Why does part-time employment increase in recessions?

“…A key fact uncovered by recent research is that a very large fraction of worker transitions between part-time and full-time work occur at the same employer and usually entail sizable changes in working hours (on average around one and a half working days per week in the UK and the US). This is the case both in normal times and during recessions [5]. In other words, for a large fraction of employment relationships, working hours can adjust very quickly and by a sizable magnitude.…”

“…For example, if construction and manufacturing employment drops very quickly at the onset of recessions, whereas employment in retail trade and services is more resilient, this will result in an increase in the share of workers employed part-time. The data show, however, that this hypothesis only accounts for a small part of the story [5]. Figure 2 illustrates this point using data from a selection of EU countries, the UK, and the US.…”

“…The extra detail available in the US data shows that, in a typical recession in that country, the number of part-time workers stating slack business conditions plays a predominant role in the increase in overall involuntary part-time work [3], [4], [5].…”

“…If the costs of hiring and firing employees are high, employers and employees may find it optimal to respond to a temporary fall in demand by reducing working hours. Recent research finds strong support for this hypothesis in the UK and the US labor markets [3], [5]. …”