In Challenge to Economy, Part-Time Workers May Stay Part Time

Among the groups that have not benefited from the “rising tide lifts all boats” trend of the economy since the Great Recession are part-time workers. One school of thought argues that will not change, creating an ongoing drag on the economy.

The San Francisco Federal Reserve posted its analysis of the situation:

The U.S. unemployment rate has held steady at 4.1% in recent months (through March 2018). This is near historical lows, indicating a very tight labor market.

By contrast, the broader measure of labor market tightness called U6 has remained somewhat elevated compared with past lows. Why? The main reason is that U6 includes individuals who are employed part time but want a full-time job—the so-called “involuntary part-time” group, or IPT, labeled “part time for economic reasons” by the U.S. Bureau of Labor Statistics. Policymakers have flagged the extent of IPT work as one important indicator of the state of the labor market in the wake of the Great Recession.

The St. Louis Fed defines U6 as “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons.”

The size of the problem is substantial, the San Francisco Fed’s experts argue:

During early 2018, involuntary part-time work was running nearly a percentage point higher than its level the last time the unemployment rate was 4.1%, in August 2000. This represents about 1.4 million additional individuals who are stuck in part-time jobs. These numbers imply that the level of IPT work is about 40% higher than would normally be expected at this point in the economic expansion.

The experts who wrote the report blame the ongoing presence of freelance workers and the rise in service sector jobs for the high part-time number. There is no reason to believe this will not be the case as the economy moves forward.

Workers in these segments face two persistent problems, both of which benefit employers. The first is that the recession taught these employers a lesson, which is that part-time workers are cheap. They do not get benefits, which can be expensive, and this lowers the overall cost of labor. The second is that service sector employees tend to be at the low end of the skills scale, and therefore cost employers less than educated workers. Companies move toward employment of the lowest common denominator of skills and education. With these lessons, companies can permanently lower labor costs.

The San Francisco Fed has pointed out an Achilles heel of the future of the American economy. Part-time workers are likely to have little discretionary income, and because of that, there is a drag on gross domestic product.