What is driving changes in the job market?

Paul Keheler

(MoneyWatch) How much can the government do to help boost the number of jobs? The answer to that question depends on why labor markets are struggling.

Here's one scenario: A recession causes a corresponding drop in demand for goods and services. In such a cyclical downturn, policymakers can help by replacing the lost demand. But if the changes are structural, such as when unemployment is due to skill mismatches, technological advances, or changes in what people purchase that require resources to be reallocated, policymakers are far less able to help.

So an important question is whether the labor market is being hampered by demand-side cyclical problems, or supply-side structural issues. The recent Employment Situation Report from the Bureau of Labor Statistics for part-time work sheds light on this issue.

Part-time employment grew to record levels during the recent recession, and while the number of workers on part-time has declined recently, the steady decline has been very slow -- even slower than the fall in unemployment. One possible explanation for the disconnect between the change in labor market conditions generally and changes in part-time employment is structural change in the market for part-time workers driven by technological change and globalization. However, a look at the underlying components of the overall part-time measurement casts doubt on the structural change explanation.

The part-time employment figures can be broken down into three subcategories, part-time due to slack work, part-time due to business conditions, and part-time because full time work is not available. As the following figure shows, these three measures are not all moving in tandem. The measures of part-time due to slack work and business conditions have been falling at about the same rate as the unemployment rate, while part-time because full-time work is unavailable has stayed relatively constant.

How should this be interpreted? The first thing to note is that two of the subcomponents of part-time employment, part-time for economic reasons and part-time due to slack work, have been tracking the unemployment rate fairly closely. When this is combined with the fact that most of the variation in the unemployment rate is cyclical and not structural, it implies that the same is true for part-time employment: It is cyclical, not structural. Importantly, this also implies that one of the fears about the implementation of Obamacare -- that firms would move workers from full-time to part-time work to avoid the requirement to provide insurance -- has not materialized. More detailed analysis and support for this conclusion can be found in work by Dean Baker and Helene Jorgensen at the Center for Economic and Policy Research discussed in an article by Alain Sherter, and this article in Politico by Jared Bernstein and Paul Van de Water.

But what about the other component, part-time because full-time work is unavailable? That's partly cyclical as evidenced by the run-up during the recession, but why has it leveled out instead of falling during the recovery phase of the cycle? That's clearly not cyclical. Part of the reason for the leveling is easy to explain,. A large number of furloughed federal workers are showing up in this measure. But even if the federal workers are stripped out, the change does not track unemployment the way the other two measures do.There is something else going on.

One likely explanation is that there is still considerable uncertainty about the recovery, a double dip recession is not out of the question at this point, and firms are reluctant to make the commitment required when a full-time worker is hired. Another is that technology is changing the nature of the workplace and causing a shift toward part-time workers. But whatever the explanation, once federal workers on furlough are accounted for, this is a relatively small part of the overall part-time picture. The main takeaway is that contrary to speculation about technological change and part-time work, most of the variation is part-time employment appears to be cyclical rather than structural.

That's good news: it means policymakers, if they choose to, could use fiscal as well as monetary policy to bolster the recovery of the labor market.