New article in American Economic Journal: Macroeconomics

ECON's assistant professor Daniel Borowczyk-Martins and Etienne Lalé from the Universite du Quebec a Montreal have published an article entitled 'Employment Adjustment and Part-Time Work: Lessons from the United States and the United Kingdom' in the American Economic Journal: Macroeconomics.

Economists have long tried to understand what underlies the large fluctuations in hours per employed worker over the business cycle. On the one hand, because the risk of nonemployment affects different workers differently, it is thought that the large movements of workers in and out of employment during recessions are behind the procyclicality of hours per worker. For example, firms are likely to cut down hiring of full-time workers during recessions.

On the other hand, since recessions entail a drop in firms' marginal revenue products, firms and their employees may adjust working hours to reflect changes in economic conditions.

Borowczyk-Martins and Lalé bring to bear new evidence to offer novel answers to this important question.

Using labor force survey data from the United States and the United Kingdom covering all recessions over the past 45 years, they show that the bulk of changes in average hours worked is chiefly accounted for by movements of workers between part-time and full-time employment at their employer.

In other words, their findings go against the hypothesis that movements of workers across employment and nonemployment states, or across jobs provided by different employers, play a big role in the procyclicality of hours per worker.

As a result, they argue, business-cycle researchers should focus on understanding the behavior of firms' internal margins of labor adjustment.