Will the US become a nation of independent contractors?

Labor mar­ket con­di­tions in the U.S. have been extremely try­ing for job seek­ers for the past sev­eral years. The “offi­cial” unem­ploy­ment rate of 7.9 per­cent in Octo­ber is far above the level thought of as rep­re­sent­ing “full employ­ment,” which is gen­er­ally set around 6 per­cent. And while employ­ment lev­els are def­i­nitely increas­ing, job cre­ation is not at a par­tic­u­larly rapid pace.

What has some­times been lost in all of the talk about the num­ber of jobs cre­ated is the “ade­quacy” of the jobs. By ade­quacy, I am think­ing about the abil­ity of those jobs to sup­port an individual/family in pro­vid­ing the neces­si­ties of life such as food, shel­ter, cloth­ing, med­ical care, etc. As I say this, don’t think I have gone through a meta­mor­pho­sis and now find myself advo­cat­ing for some sort of inter­fer­ence in labor mar­ket mech­a­nisms, such as an increase in the min­i­mum wage or some other equally dysfunctional/counterproductive approach to “improv­ing” people’s lives. I haven’t.

As with all nations that col­lect labor mar­ket data, the U.S. has estab­lished def­i­n­i­tions for the sit­u­a­tion a per­son might fall within. In the case of employ­ment, the house­hold sur­vey gen­er­ally defines an employed per­son as one who receives com­pen­sa­tion for at least one hour of work dur­ing the ref­er­ence week when data are col­lected. Think about that for a moment. By work­ing just one hour (which obvi­ously will not be the case for many work­ers), a newly employed indi­vid­ual is counted in a way that many peo­ple would assume rep­re­sents gain­ful employ­ment. But far from it in terms of the “ade­quacy” of that poten­tially mea­ger job opportunity.

So how preva­lent is this prob­lem of the poten­tial inad­e­quacy of jobs? Accord­ing to the Bureau of Labor Sta­tis­tics’ house­hold sur­vey, in Decem­ber 2007 when the reces­sion offi­cially began, the num­ber of per­sons who were employed part-time (between 1–34 hours per week) for eco­nomic rea­sons was 4.618 mil­lion peo­ple, or about 3.2 per­cent of all employ­ment. In Octo­ber of this year, 8.344 mil­lion peo­ple were employed part time, which rep­re­sented just over 5.8 per­cent of all job hold­ers. While the increase is not mon­strous — at least not yet — it is cer­tainly a sta­tis­ti­cally sig­nif­i­cant increase and could rep­re­sent a cause for con­cern mov­ing forward.

While no defin­i­tive rea­sons can be iden­ti­fied for such a devel­op­ment, a few thoughts read­ily come to mind. First, with eco­nomic uncer­tainty so pal­pa­ble that one could almost cut it with a knife both here and abroad, busi­nesses might very well be hedg­ing their bets and keep­ing employ­ment lev­els extremely light. As such, new hir­ing will be restrained and if part time employ­ees can fit labor needs — which might often be pos­si­ble given the num­ber of peo­ple unem­ployed or only mar­gin­ally employed — then busi­ness will jump at the oppor­tu­nity to hold down their costs.

Cost con­tain­ment is thereby a highly inter-related sec­ond rea­son for the rel­a­tive explo­sion of part-time employ­ment. For the past sev­eral years, busi­nesses have found it extremely dif­fi­cult to pass along higher costs to their cus­tomers. In part this is due to very mod­est increases in aggre­gate demand within the econ­omy, as well as intense price com­pe­ti­tion from for­eign busi­nesses try­ing to gain a greater mar­ket share in the highly prized U.S. mar­ket­place. And since labor expenses are gen­er­ally one of the biggest costs busi­nesses face, hir­ing in part-time work­ers may seem like a no-brainer where it can be done.

Related to the notion of cost-containment is the imple­men­ta­tion of the now unavoid­able Afford­able Care Act, oth­er­wise known as Oba­macare. Start­ing in 2014 busi­nesses with more than 50 full time work­ers will be required to offer an accept­able health­care insur­ance pack­age to employ­ees or face sig­nif­i­cant fines. In response, some indus­tries are now “exper­i­ment­ing” with the pos­si­bil­ity of replac­ing full-time work­ers with a greater reliance upon part-time employ­ees. This seems to be hap­pen­ing most obvi­ously in the hos­pi­tal­ity and retail sec­tors of the econ­omy. Should this become a viable means of hold­ing down costs — and the result­ing prices charged to cus­tomers — it could rep­re­sent a trend that will become ever more pro­nounced as time progresses.

If true, many Amer­i­cans may be required to adjust their nation of work­ing; where they become “inde­pen­dent con­trac­tors” who are required to put together a series of part-time rela­tion­ships with var­i­ous busi­nesses to piece together an “ade­quate” employ­ment sit­u­a­tion. It may not be anyone’s pref­er­ence, but some­times out­comes are def­i­nitely not what many of us would prefer.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Nov 13 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.