During the Great Recession, involuntary part-time employment surged. So, now that the economy is recovering, shouldn't involuntary employment return to prerecession levels? Perhaps not, according tonew research from the Federal Reserve Bank of San Francisco
Changes in the U.S. economy's industrial composition toward services combined with shifting demographics and changes in labor costs appear to have caused a permanent increase in the percentage of people forced to accept involuntary part-time employment.
The Bureau of Labor Statistics tracks two types of part-time employment. First is voluntary part-time employment, which is around 15 percent of total employment. In this case, the worker freely chooses to work less than full-time. In general, policymakers don't worry too much about this category because it's a matter of choice for both the worker and the employer.
The other type is involuntary part-time unemployment, which is about 5 percent of all employment. This occurs when a worker would like to work full-time but can only find part-time work. This type of part-time employment does concern policymakers because it's an indication of slack in the labor market. That is, it implies that employment opportunities are insufficient to employ the workforce at desired levels.
Voluntary part-time unemployment has been falling over the last few decades and didn't change much during the Great Recession. However, as the graph below shows, involuntary unemployment rose substantially during the downturn and has receded more slowly during the recovery than overall unemployment.
Prior to the recession, the rate of involuntary part-time employment was around 3 percent. It increased to a little over 6 percent since during the slump and has since fallen to approximately 4.5 percent as of May.
How much further should we expect the involuntary part-time employment rate to fall? If the entire change in involuntary unemployment is due to the recession -- that is, due to cyclical factors -- then it ought to fall back to the prerecession level of 3 percent.
However, as the authors of the San Francisco Fed study note, structural factors are also playing a role and are likely to permanently increase the involuntary part-time employment rate above its prerecession level.
What are these structural factors? Since the onset of the recession, the service industry -- where involuntary part-time unemployment is generally higher -- has been ascendant. Demographic factors have also increased the numbers of involuntary part-timers. Workers aged 25 or less are a large part of the voluntarily part-time employed, and the proportion of workers in this category is falling. This may cause employers to turn to other groups to fill part-time positions, which could be increasing the rate of involuntary unemployment.
Tax rules that allow part-time workers to be excluded from some types of benefits that full-time employees receive and new technologies that reduce the cost of scheduling part-time workers have also increased the rate of involuntary part-time employment.
The San Francisco Fed finds that, taken together, these factors will result in a 1 percent to 1.25 percent increase in involuntary part-time employment relative to the prerecession level. Thus, while most of the change in involuntary employment can be attributed to cyclical factors associated with the Great Recession, an important permanent component of it is unlikely to go away.
That shift in labor may point to a "new normal," where the typical household finds decent, full-time employment harder and harder to find.