The Great Recession left us with a higher share of part-time employment, suggesting the labor market is weaker than the lower unemployment rate suggests. Thankfully, full-time jobs are finally growing again.
Increased Part-Time Employment Indicates More Slack
While job gains have broadened into better-paying industries during the past year, the number of full-time jobs in the economy has yet to recover to its prerecession level (top chart). Total employment, measured by the household survey, fell by 8.6 million jobs in the wake of the recession, but full-time jobs fell by a much larger 11.3 million, as weak demand led employers to slash hours and relegate many workers to part-time status. This past month, household employment surpassed its prerecession peak, but 2.1 million fewer Americans are working full time today than in November 2007. This may help to explain why various surveys, such as the NBC News/Wall Street Journal survey, show that a large proportion of Americans continue to believe the U.S. economy is in a recession more than five years after the recession technically ended. The dearth of new full-time jobs is another reason the housing market recovery remains so excruciatingly slow. Few part-time workers buy homes.
Despite the anemic recovery, job gains have clearly shifted to full-time positions over the past year (middle chart). Part-time employment has risen by 414,000 workers since last October, but full-time employment has increased by 3.4 million. At that pace, the level of full-time workers would finally recover by next July. The outperformance of full-time relative to part-time employment suggests the spike in part-time was mostly cyclical. The bottom chart breaks down total employment into part-time because of slack business conditions, those who could only find part-time work, part- time for noneconomic reasons, and full-time employment. The spike in slack work conditions implies that the increase in part-time employment was a result of employers cutting hours and converting full-time employees to part-time, demonstrating the importance of looking behind headline figures. After the recession, the labor market was worse than what the drop in employment suggested, as a larger share of jobs were part-time.
Elevated part-time employment has also been a drag on wages. The higher unemployment rate combined with the larger-than-normal proportion of workers wanting to increase their hours means employers can either cut wages or, more likely, slow the pace that they increase them. The fact that part-time employment increased so rapidly simply means there is more labor market slack than the unemployment rate alone would suggest.
The shift in the composition of job gains toward more full-time work is a promising sign. The growing share of full-time workers should boost household income and support consumer spending in 2015. The surge in hiring over the past year likely reflects some catch-up effects from the recession, as employers’ earlier reluctance to hire left workers stretched thin. We expect overall job gains to moderate slightly in 2015, but the mix should continue to improve, producing stronger wage and salary growth.
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