The labor-market recovery that Federal Reserve Chair Janet Yellen seeks is proving incomplete as many U.S. workers languish in part-time jobs.
Forty-nine percent of people working less than 35 hours a week in 2012 and desiring full-time work were able to find such a position within a year, according to research by the Federal Reserve Bank of Atlanta. That’s down from 61 percent in 2006.
In addition, the almost 3 million Americans unemployed for at least 27 weeks are more likely to accept part-time jobs than counterparts out of work for shorter periods, according to a Chicago Fed paper. That means underemployment, a hallmark of the slow and uneven recovery from the recession, won’t quickly dissipate, backing policy makers such as New York Fed President William C. Dudley who counsel patience in removing stimulus.
“Slack is going to be gradually picked up, rather than just disappearing overnight and causing an upturn in wages,” said Emanuella Enenajor, an economist at Bank of America Corp. in New York. “It buys the Fed time to keep policy accommodative.”
Eugene Grace, from Minneapolis, is among those struggling. He lost his full-time human-resources job at a medical devices company in 2006, stayed home at first to care for his five adopted children, then took temporary and part-time work to pay the bills.
Those jobs have ended, so he’s searching again for any position, even part-time, to show prospective employers he’s staying active.
When he was first unemployed, Grace, 54, said he probably wouldn’t have settled for part-time work. Now, “that’s more recent work experience that I could put on my resume.”
About 26 percent of people hired following long-term unemployment get stuck in involuntary part-time limbo, compared to 18 percent of those jobless for less than 27 weeks, according to the Chicago Fed’s research.
Once employed part-time for economic reasons, workers in goods-producing industries such as manufacturing have better odds of landing full-time work than service-producers like Grace, the Atlanta Fed found. Both have a lower chance of making that jump than they did prior to the 18-month recession that ended in June 2009, the deepest in the post-World War II era.
From 1998 to 2007, about one in five service employees involuntarily clocking part-time hours remained in that status after a year, according to the Atlanta Fed’s research. Today, it’s closer to one in three.
For goods-producing industries, the share of involuntary part-timers was about 22 percent as of July compared with 16 percent seven years earlier. Still, that’s down from a peak of about 30 percent in December 2009.
“It doesn’t seem to be something specific to a characteristic of the worker,” said John Robertson, a senior economist at the Atlanta Fed. “We just don’t have enough full-time jobs being created.”
Some 7.3 million people were involuntarily working part time in August, compared with 4.6 million in December 2007, at the outset of the recession.
“There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work,” Yellen said during a Sept. 17 press conference in Washington after the central bank’s last policy meeting. They form part of the “significant underutilization of labor resources” that’s keeping a lid on wages, she said.
The elevated number of part-timers -- and the fact that their transition to full-time work has slowed -- could have several causes.
The type of jobs created in the U.S. has shifted during the recovery. The number of people employed by bars and restaurants has climbed 13.4 percent since the last recession ended, while total employment has grown by 6.2 percent.
The transformation of the job market away from manufacturing toward services could lead to more involuntary part-time work, Federal Reserve Board economists wrote in an April note, though they added “the effect is expected to be modest.”
President Barack Obama’s signature health-care law could also be spurring employers to cut hours, since they will be required to make insurance coverage available to employees who work at least 30 hours. Obamacare’s so-called “employer mandate” doesn’t take effect until next year for large companies and is delayed until 2016 for small businesses with 50 to 99 full-time equivalent workers.
In the middle of last year leading up to the mandate’s then-planned 2014 start date, there was “a big spike up in part-time work and then a big drop down when it was delayed,” said Guy LeBas, managing director at Janney Montgomery Scott LLC in Philadelphia. “There’s clearly some impact” though “it’s really impossible to separate that out from many other issues.”
Perhaps most crucially, skittish employers worried about the sustainability of the recovery may be hesitant to create full-time jobs, instead sticking with part-timers who represent a lesser commitment because they often don’t receive benefits.
“The fact that we just don’t have enough jobs for everyone who wants one now means that people are taking what’s available,” said Valerie Wilson, an economist at the Employment Policy Institute in Washington. “That elevated number of part-time for economic reasons means that wage growth will suffer.”
As companies grow more confident that the economic expansion will persist, they may take on more full-time staff -- converting those who are working part-time today and those using part-time jobs as a stepping stone out of unemployment.
That’s not happening yet. In a Harvard Business School survey on U.S. competitiveness published in September, about 20 percent of alumni business leaders said they were hiring more part-timers compared to three years ago, while 10 percent were hiring fewer.
When a change does materialize, employers could keep a lid on wages by shifting part-timers into full-time work, because they’ll be able to appease workers with more time on the clock rather than by raising hourly pay.
“We could see a situation of declining part-time hours and stagnating wages,” LeBas said. At the same time, more hours means “actual income in the economy is improving.”
For workers like Grace, who has an undergraduate degree in behavioral disabilities and a master’s in rehabilitation counseling from the University of Wisconsin at Madison, labor-force slack can’t be absorbed quickly enough. The additional money would give him the opportunity to do more with his children, he said.
“It’s challenging financially, and it’s challenging psychologically” to be unemployed for so long, said Grace, who’s exhausted the retirement savings from his 401(k) account. “I’m trying to stay optimistic.”