Stagnant Wages Are Due to Increase in Part Time Work Despite Employment Growth

Unemployment is decreasing but wages are stagnant. According to that old econ textbook you've got stuffed in the back of your closet, such things are not supposed to happen. Increased demand sparks higher prices, right? Well, unless that growth is mostly in part-time work - as is currently the case - meaning that take-home pay remains depressed.

If this were confined to the usual suspects: retail and hospitality, it would be less worrisome. But the fact that it is becoming a structural change across the economy just as Millennials become the dominant workforce cohort may have profound implications for the future. JL

Kathleen Madigan reports in Real-Time Economics:

Part-time spots, less than 35 hours a week, now account for a larger share of total employment than they did before the recession. “Could only find part-time work” is typically the result of structural changes in the labor markets.
Labor markets bounced back in April, with one glaring exception.
The economy created 223,000 new jobs last month, and the unemployment rate, at 5.4%, is heading toward a level normally viewed as signaling a tight labor market. Yet yearly growth in average hourly wages remains stuck at about 2%. If the economy were facing a shortage of labor, then businesses should be boosting pay at a faster clip to keep their employees and attract new ones.

One possible explanation is that more companies have restructured their staffing to focus on part-time workers. Because of that, there is slightly more slack in the labor markets than the jobless rate indicates. And these part-timers have less bargaining power to negotiate higher wages.
To be sure, most of the jobs created in this expansion (as reported in the household survey) are full-time positions. But part-time spots, less than 35 hours a week, now account for a larger share of total employment than they did before the recession. That’s true for total part-time workers and for part-time workers who would prefer a full-time position.
The Labor Department breaks down involuntary part-timers into two classifications: those who are working part-time because work is slack and those working part-time because that’s the only job offered.
Stephen Stanley, chief economist at Amherst Pierpont Securities, notes a distinction between the two. “Slack” part-time work is the result of cyclical forces, while “could only find part-time work” is typically the result of structural changes in the labor markets.
With economic output expanding, the number of part-timers because of slack work has fallen sharply from a high of 6.9 million during the recession to 3.9 million in April. That’s only about 37% higher than the average from 2003-07, Mr. Stanley writes in a research note.
On the other hand, the number of workers who could only find part-time slots has barely fallen since the recession. At 2.4 million in April, the number is 84% higher than the 2003-07 average. That large number means the economy has more labor available to meet businesses’ demands.
Why are businesses focusing on part-timers? One reason, says Mr. Stanley, is “the rising expense of benefits as a proportion of total labor costs.” He expects that over time one million or so involuntary part-timers will move into full-time work.
That transition, however, may not move the wage picture much. That’s because these workers will probably be willing to accept the same wage scale as long as they can move into full-time positions. After all, longer hours will boost their paychecks.
Wage growth may not pick up meaningfully–say above 2.7%–until the share of workers who are involuntarily part-time falls from its current 4.4% and returns close to its prerecession average of 3%.