On September 2nd (Labor Day), USA Today published an article entitled "Is Part Time Work The New Normal?" The article details how it's not just folks in their 20s, but folks in their 30s and 40s who are juggling part time jobs, many a mix of professional and so-called McJobs (thank you Douglas Coupland, author of Generation X for coining that brilliant term) in order to make ends meet. Some of this is the result of our slow, anemic recovery from our most recent recession in the business cycle, some of it may be due to other factors. Per the article, involuntary part-time workers — those who are seeking full-time work or holding multiple jobs — remain between 19% and 20% of the nation's workforce, up from 17% in 2007.
While some folks are happily saying we are almost fully recovered, the details are saying "not so fast!" As the article stated very directly "Of the nearly 1 million new jobs created this year (2013), 80% or 800,000 of them are PART TIME positions." This then begs the question: if the jobs created are only part time jobs, then why is the unemployment rate going down? Shouldn't it not go down as much if the jobs created are part time? Actually, as usual, things are a lot more complex than they seem. First of all, the way most countries measure their labor force is by head count, not by workers working 40 hours per week or annual salary paid jobs. According to the US Dept. of Labor's standards, all that a person has to work is 20 paid hours in the 4 week period prior to the day of record (2nd Wednesday of the month) in order to be counted as a fully employed member of the Labor Force. This goes against the way many managers measure employment--FTE or full-time-equivalent, which is 40 paid hours in a week. Someone who works 5 hours a week is one-eighth of an FTE, not counted the same as a full timer.
Second, anyone who has not had paid hours recorded (this is measured by Social Security or Tax ID) during the 4 week period before the Day of Record, but has been filling out job applications (again, SSN/TID tracks this) is counted as an Unemployed member of the Labor Force. Anyone who has neither had paid hours nor has been applying for work is not in the Labor Force at all.
Typically during recession in the business cycle--the part of the downturn that's below the secular trend line, where production and spending start to drag the trend down and involuntary (aka cyclical) unemployment is on the rise--part time jobs start to become more commonplace. However during recovery in the business cycle--the part following recession and trough where spending and production are rising, but are still below the trend line--there is usually a gradual increase in full time employment. Although spending and production have risen, the question is why haven't the number of Full Time positions risen along with them? There are several factors at work that need to be examined:
1. Recovery is NOT the same as Expansion
Too many Economics Textbooks have dumbed down the business cycle and lumped recovery and expansion phases together. The reality is that recovery is still below the secular trend in the business cycle, while expansion is above the secular trend. Recovery means you're trying to get back to the position on the trend line you were at production/spending wise before the recession. Expansion is where real economic growth is happening. The reality is that the US Economy has had a SLOW ANEMIC RECOVERY and we are not at or above the secular trend line at present. It's possible pundits and politicians are in such a hurry to declare the recession over they are ignoring reality. They need a reality check.
2. Businesses are trying to Keep Costs Low
Many businesses had to find creative ways to reduce their operating costs in order to survive the most recent recession. For most owners and operators of businesses, labor costs are the easiest cost to control. For one, hourly wage labor is an example of a variable cost--costs directly tied to quantity of output produced by a firm. When a firm sells more output, variable costs are higher, and when a firm sells less output as is the case during a recession, the firm's variable costs are lower. Some of these costs are easily controlled, like electricity and water usage, which are used instantly. Some, like materials used to make products, are more difficult to control as usually these are bought in bulk and are used gradually, rather than instantly. Labor is neither instant nor gradually used, but falls somewhere in between. If a burger joint's manager checks the sales in the register and sees the revenue the firm has earned for a shift has fallen below costs, they can't suddenly get the price per pound they paid for the beef in the freezer or the potatoes in the cooler reduced, but the manager can send 2 people home, cutting his labor cost for the shift by 6 worker hours or about $60.00 in total in the Houston area.On a larger scale, there is a huge difference in costs between full time and part time workers, whether they are hourly wage or salaried workers. Besides the paycheck differences, full time hourly wage workers who work 40 hours per week or more must be provided health insurance per federal law prior to Obamacare (see below). However, in some states, the law is 20 to 25 hours. Additionally, providing retirement savings, professional development training, disability insurance and other such benefits are common, even where not mandated by law. In order to reduce the costs of employing workers, many companies reduced the hours of the majority of their staff to under 40 hours in order to cut the extra costs of benefits, the most expensive of which is Health Insurance.
3. Worker Attitudes are changing about Part Time Employment
Per the article:
"The number of jobs that need to be done by full-time employees continues to diminish," said Carl Camden, president and CEO of Kelly Services, a global temporary staffing agency, based in Troy, Mich. "Work has become more fragmented, and more people are willing to work in non-traditional environments." Since 2008, the percentage of people in the workforce regarding themselves as free agents has grown from 26% to more than 40%, according to a Kelly survey. Employees — especially Generation X workers in their 30s and 40s — want more freedom to set their own hours and create their own enterprises, and older workers — baby boomers in their 50s and 60s — are retiring slowly and taking on part-time jobsI've heard it said by the Silent Generation (those born 1925 to 1945, my parents' generation) and some of the OLDER Baby Boomers (Born 1946 to 1964, talking of those born in 1950s and earlier) that too many young people--Generation Xers (born 1965 to 1979, my generation) and Millenials (Born 1980 to 2000) have no sense of company loyalty and change jobs almost as fast as we change Facebook friends. This is not entirely accurate, but there is good reason for this perception to prevail. Look at the last 5 years, plus the first few years of the 1990s (when I completed my degree):
2007 to present feels A LOT like 1991 to 1995. These were years of Recession, slow economic growth and limited opportunities. During both these time frames you had people finishing advanced college and graduate degrees with very few job opportunities out there. I personally knew 3 people who were doing everything they could in 1992 to get scholarships to earn another Master's Degree so they could work as a Teaching or Research Assistant since there was no demand for their degrees in the private sector. I recently met a young Barista at Starbucks who changed his major from Accounting to Engineering because as a junior in college, he was not finding any internships, and friends who were graduating were finding no jobs out there for them. However, he'd found there were lots and lots of jobs out there for engineers and he was having to extend his degree plan from 4 to 6 years in order to graduate with a degree that was employable. It's kind of hard to do that midstream but the Economy and society change at an accelerated pace these days and those who don't adapt fast can get left far behind before they realize it.
I personally had 3 part time jobs between 1992 and 1994--weekdays banking, 2 evenings a week as an adjunct professor and weekend sales in a health food store. I had to do these 3 jobs in order to pay rent, utilities, buy food and pay my car note & student loans. I did not have the option of moving back to my parents' house because the economy where they lived was even worse than it was in Houston at that time and I had to stay where there were opportunities to get ahead. After 2 years of that, I obtained a full time position in the bank, ditched the Health Food store sales job, but did not stop teaching Economics part time because I'd seen too many coworkers in banking lose their job over something trivial or due to cost cutting procedures by the bank. I can also tell you for a fact that many of the faculty at HCC, Lone Star College, San Jacinto College, Wharton College, University of Phoenix, Devry and Strayer University are Adjunct Faculty (part time) at 2 or 3 other institutions of higher learning in the Houston area. This is because these colleges, in order to keep costs and tuition down, hire mainly part time faculty. Additionally, the amount of offshoring of skilled jobs like accounting, tech support and customer service to foreign countries like India, the Philippines and Taiwan has put degreed professionals in fear of their livelihood and has made them feel they have to keep looking for the next job while they are employed in their current job. There's also the feeling that if the job that you do well can be easily replaced with a cheaper alternative over Skype, the company is not showing you any loyalty, so why should you show them what is not reciprocated?
4. Obamacare is the Elephant in the Room
It is a favorite argument of some folks that the reason why Full Time jobs aren't making a comeback despite the recovery is due to Obamacare becoming law in the next couple of years. The major provisions of the law:- Full time as defined by this law is 30 hours per week or more
- Those employers with at least 50 full time employees per that definition must provide “qualified” health coverage for all of their full-time employees
- Those who don't must pay an annual penalty of $2,000 per full-time employee (after the first 30) if they don’t provide such coverage. If they do provide coverage but it’s not affordable, the penalty is $3,000 per employee who finds it unaffordable (with a cap at the penalty they’d pay for not offering coverage at all)
- “Affordable” is defined as less than 9.5% of the employee’s family gross income
- If the employer decided to let the employees work more than 30 hours (and pay the penalty), the money to pay the penalty would have to come from somewhere.
- It could come from reduced profits, higher prices – or lower pay for workers. Many business run at very slim profit margins, so it’s unlikely that they could take the entire hit to their profit and stay in business.
- Business‘ ability to raise prices is limited by customers’ willingness to pay. Chances are, employees would have to absorb some of the penalty – perhaps most of it – in the form of lower wages.
- For workers making at or near the minimum wage, there is even less flexibility. The wage cannot be reduced by federal or state law if the state minimum wage rate is higher than the federal, so the employer’s only option is the reduce work hours to avoid having to pay the penalty.
The irony of all this is that the number of jobs created would increase, while the average workweek for employees would be reduced by 25 to 30%, along with the average paycheck for those employees.
However, defunding Obamacare or not enforcing it won't magically make full time jobs reappear.
If you re-read my earlier statement, businesses have had to cut costs rigorously well before this oncoming federal law due to the state of the economy.
A Reality Check to All of us
The reality is the only thing that will bring about growth in the number of full time jobs will be a combination of dropping production costs, rising sales of goods and services and an increase in the rate of real economic growth within the economy due to a real increase in production and sale of goods and services. While our economy has experienced some growth during this recovery, the rate of growth has been slow. Looking at the chart below, we had negative growth in real GDP for a few years, at one point as bad as 4.1% drop. The recent 2 years had a growth rate that was much better, but the average rate of growth in GDP has been 1.00% for the past 5 years. Usually for healthy growth, real GDP has to grow by 3% or more each year, and that's not what we've been having lately. The past 3 years have basically offset the losses of the previous few, which means we've moved back to where we were when the recession was underway, but are nowhere near positive growth.
As always, any one of my students who makes a good, thorough, well-reasoned comment MIGHT earn an extra point on an upcoming test. Non-students, I welcome similar comments from you. Stick the the economics, check your politics at the door (especially the extreme Liberals and extreme Conservatives)!
Success to you all!!!
Professor Hank
