The Welfare Effects of Involuntary Part-Time Work

By Daniel Borowczyk-Martins and Étienne Lalé

Employed individuals in the U.S. are increasingly more likely to work part-time involuntarily than to be unemployed. Spells of involuntary part-time work are different from unemployment spells: a full-time worker who takes on a part-time job suffers an earnings loss while remaining employed, and is unlikely to receive income compensation from publicly-provided insurance programs.We analyze these differences through the lens of an incomplete-market, job-search model featuring unemployment risk alongside an additional risk of involuntary part-time employment. A calibration of the model consistent with U.S. institutions and labor-market dynamics shows that involuntary part-time work generates lower welfare losses relative to unemployment. This finding relies critically on the much higher probability to return to full-time employment from part-time work. We interpret it as a premium in access to full-time work faced by involuntary part-time workers, and use our model to tabulate its value in consumption-equivalent units.

This paper is a bigger deal than it seems, and they is actual debate about this topic. It is matters quite a bit. People may not like it ti be working part-time, but the continuation value is so much higher than under unemployment. Of course, this result may not translate to other labor markets with different employment probabilities and different income support schemes.


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