Part-Time Work Is Increasingly By Choice As U.S. Labor Market Strengthens

by: Ed Dolan

The U.S. labor market continued to strengthen in June, according to the latest data from the Bureau of Labor Statistics. Strong June data and upward revisions for April and May put payroll job gains for the second quarter of 2013 ahead of those for the first three months of the year. The unemployment rate remained unchanged, as both the labor force and the number of employed workers grew. Involuntary part-time work fell to its lowest level since early 2009, and long-term unemployment also fell to a low for the recovery.

The economy gained 202,000 private-sector payroll jobs in June. Most of those came in the service sector, although goods-producing industries also gained slightly. The government sector as a whole lost 7,000 jobs, but trends differed strongly by level of government. The federal government lost 5,000 jobs, continuing a long decline. State governments reduced payroll employment by 15,000 jobs, but that was almost fully offset by a gain of 13,000 jobs in local government.

As the following chart shows, payroll job gains were revised upward from data first reported for April and May. The revisions raise the total number of payroll jobs added in Q2 2013 to 535,000, significantly more than the 481,000 added in the first quarter. The good quarterly job data provides a reason for optimism regarding Q2 GDP, for which the first estimate is due at the end of the month.

The unemployment rate for June remained steady at 7.6 percent, near its low for the recovery. The unemployment rate is the ratio of unemployed persons to the civilian labor force. The labor force grew by 177,000 in the month, the number of employed by 160,000 and the number of unemployed by 17,000. These data are based on a separate household survey that does not always agree with the survey of employers on which the payroll jobs data are based. The two differ partly because of sampling error and partly because the payroll jobs data exclude farm workers and the self-employed. The BLS also publishes a broader measure of unemployment and underemployment, U-6, which includes discouraged workers and involuntary part-time workers. Despite otherwise healthy job numbers, U-6 rose to 14.3 percent in June. Both the standard and broad measures of unemployment are shown in the next chart.

The duration of unemployment offers still another perspective on labor market conditions. Long-term unemployment, which has been unusually high over the past five years, has finally started to come down. As the next chart shows, the number of workers out of a job for 27 weeks or more fell to 36.7 percent of all unemployed, the lowest level of the recovery, although still very high by historical standards. The mean and median duration of unemployment also fell for the month.

Finally, the BLS report includes some interesting data on part-time work. The BLS divides part-time workers into two categories. About two-thirds of all people who work from 1 to 34 hours per week do so voluntarily, for example, because they are retired, are studying, or have family obligations. The rest are working part-time for economic reasons, that is, either because they can't find full-time work or because their employer has cut their hours. Those are popularly known as "involuntary" part-time workers. During a recession, the number of involuntary part-time workers tends to increase, and then falls again during the recovery. The behavior of voluntary part-time employment is just the reverse—it falls during a recession and rises again during the recovery.

Both trends are evident in the next chart, which shows that involuntary part-time work fell to a low for the recovery in June. Meanwhile, the trend of voluntary part-time unemployment has been upward. Both trends appear somewhat more pronounced than during previous recessions.

Some labor-market observers expect the number of part-time workers to rise sharply next year when the Affordable Care Act comes into effect. When fully implemented, the ACA will require employers to provide healthcare coverage for full-time workers or pay a penalty. At the same time, it will make it easier for workers who are not covered at work to buy individual health insurance privately through insurance exchanges. That will be especially important for people with pre-existing health conditions, who now often find it impossible to buy individual coverage, and for low-wage workers, who will receive subsidies when they buy insurance through exchanges.

As a result of these various incentives, the ACA may have the paradoxical effect of increasing both voluntary and involuntary part-time work. Voluntary part-time work may rise because, at present, some people who would prefer to work fewer hours reluctantly work full time solely because that is the least expensive way, perhaps the only way, to get health insurance. On the other hand, some employers may cut hours or replace full-time positions with part-time positions in order to lower healthcare costs or avoid penalties. That may make full-time work harder to find for many who want it. It will be interesting to watch the trends of part-time employment as more provisions of the ACA come into effect at the first of the year.