Wednesday, October 23, 2013

The non-story about part time employment

Well, we probably won't be hearing about Obamacare and part time employment for a while.  Full time employment surged last month.  Jeff Miller has it exactly right, as usual.

This is one of the many issues where we tend to get selective amnesia in defense of our political biases.  Conservatives forgot about noisy data and seasonal fluctuations when they saw a data point that looked like it was a negative consequence of Obamacare.  Liberals forgot about how they normally model the employment market as if employers hold all the power when they argued that the employment market was basically unchanged in the face of a clear incentive for employers to demand that change.

I consider Obamacare to be a law that will have many negative consequences, seen and unseen, and some of those consequences will be visible in the labor market.  But, an immediate and sizable transfer of labor from full time to part time is not one of them - at least not yet.  If it does happen, it will probably happen slowly, because in the infinitely complex market between laborers and employers, laborers have a strong influence on the equilibrium state.

If the government simply outlawed part time labor, we would see an immediate and significant change in the make-up of the labor force.  That is because the government can force change that doesn't account for the infinitely complex set of demands and negotiations between laborers and employers.  The fact that government can force change so effectively is exactly the reason why it is so destructive.  Much of the health care mess we have today results from the government instituting controls on cash wages in WW II very effectively, and then enforcing the employers' health insurance tax benefit very effectively for the next 80 years.  Obamacare intends to fix the resulting problems with hundreds of fines, fees, obligations, price controls, and mandates, each of which will be enforced very effectively.

There was an old lady who swallowed a fly......

PS.  On the employment report itself, I believe that this is a continuation of the state of affairs where the unemployment rate is the most telling part of the report, but everyone brushes it aside because they are misinterpreting the declining level of labor force participation.  In the short term, this appears to be tricking the Fed into keeping a looser monetary policy through extended QE3, since they continue to overestimate future GDP growth while under-forecasting the decline in unemployment.  It looks to me like unemployment will be at 7.0% before they even begin tapering.  In the end, though, I fear that the Fed will continue to be too focused on inflation.  The continued flow of baby boomers out of the labor force probably calls for a slightly higher inflation target, which the Fed will not follow, and I'm afraid that we will be back at the zero bound after the recovery slows down.  If we see an uptick in growth and suddenly find ourselves at the beginning of 2015 with 6.0% unemployment, strong home prices, and a surge in inflation, I'm afraid the Fed will whipsaw us back into another liquidity crisis.


  1. ' immediate and sizable transfer of labor from full time to part time is not one of them - at least not yet.'

    Why not? Employers look to the future.

  2. That's the million dollar question. I was just making an empirical statement. I just don't see it in the data. Just like you, I also would have expected forward looking employer adjustments. The incentives from Obamacare and anecdotal clues seem clear on the matter. But, it just doesn't seem to show up anywhere in the macrodata.

    My reaction to this is to say, well, there is supply and demand in the labor market. There must be a lot more going on there than we accounted for. Maybe we are overestimating the strength of labor demand on the equilibrium quantity of part time labor. Maybe regarding the factor of part time vs. full time work, on the margin, the supply of labor is fairly inelastic. Here is a previous post I did on it:
    It's interesting that basically all of the cyclical variation in the quantity of labor comes through full time work. Part time labor has a strong seasonal variation, but basically just plows through each business cycle in a straight line. It may be that the quantity of part time work is mostly just a structural issue regarding types of work that need done and types of workers available to do it, and in sum, those factors are much more important than the incentives from Obamacare.