A look at why part-time employment is high

As I noted earlier this morning, involuntary underemployment remains well above pre-Great Recession levels. A research note from the Federal Reserve staff last spring (“Why is Involuntary Part-Time Work Elevated?”) tries to explain this situation:

Our analysis offers several clues on why involuntary part-time work has increased during the recession and why it has remained elevated even as other labor market measures have improved. Cyclical forces likely accounted for the bulk of its increase during the recession, but as the economy has improved, the number of persons working part-time due to slack business conditions has recovered. On the other hand, the share of workers who could only find part-time work remains high, and the continuing lack of available jobs weighs on the ability of unemployed and involuntary part-time workers to find full-time jobs.

They also note there is has been a net flow of workers from involuntary underemployed to full time employment for the past few years. During the Great Recession, more workers had switched from full time to part time. Importantly, the additions to the involuntary underemployed come from those who had previously been unemployed. So there seems to be a two stage progression evolving:
     1) from unemployed to part-time (underemployed); and,
     2) from part-time to full-time.
That might not be the best situation for workers, but it seems to be the labor force adjustment system at work. Our policy task is to speed up, and many create a short-cut, in that system. That means looking at policies that improve the transition from unemployment to part-time and part-time to full-time. One of those policies is job-sharing (see earlier posting). Rather than laying off workers, a job-sharing program would compensate workers for lost wages due to switching to fewer hours during slack time. In doing so, it would open up more part-time employment with a path toward full time work as demand increased.
However, job-sharing should be paired with a knowledge tax credit. Rather than reduce their hours, a tax credit could be given for workers spending those hours for training, either on-the-job training or in the classroom. This would have a dual effect. It would increase our human capital — a major input to productivity and economic growth. And it would immediately increase consumer demand by creating more employment slots for others to fill the working hours of those in the classes.
Involuntary underemployment continues to be a problem with the U.S. labor market. Policy makers are beginning to pay attention (see early posting). But awareness alone doesn’t help. The authors of the Fed note cited above believed that “As hiring improves, this should further reduce the share of involuntary part-time work.” However, there has not been any great improvement in the situation of the involuntary underemployed since they wrote that back in April. Creative thought needs to be given to solutions – especially micro-economic, labor policy solutions. Just worrying about the macro-economy simply won’t be enough.

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