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.