Underemployment Hits Record as Companies Cut Hours

The proportion of Americans designated as “involuntary part-time” hit a record high. This development would seem to undercut the unexpectedly upbeat news from the ADP payroll report earlier this week, that an unexpected 9,000 jobs had been added. Some experts warn that these reductions in work hours are a precursor to workforce reductions.

From the New York Times (note I’ve omitted the sad stories, but some really are pretty grim):

The number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago…..

On the surface, the job market is weak but hardly desperate. Layoffs remain less frequent than in many economic downturns, and the unemployment rate is a relatively modest 5.5 percent. But that figure masks the strains of those who are losing hours or working part time because they cannot find full-time work — a stealth force that is eroding American spending power.

All told, people the government classifies as working part time involuntarily — predominantly those who have lost hours or cannot find full-time work — swelled to 5.3 million last month, a jump of greater than 1 million over the last year.

These workers now amount to 3.7 percent of all those employed, up from 3 percent a year ago, and the highest level since 1995.

“This increase is startling,” said Steve Hipple, an economist at the Labor Department….

“The unemployment rate is giving you a misleading impression of some of the adjustments that are taking place,” said John E. Silvia, chief economist of Wachovia in Charlotte. “Hours cut is a big deal. People still have a job, but they are losing income.”

Many experts see the swift cutback in hours as a precursor of a more painful chapter to come: broader layoffs…

“The change in working hours is the canary in the coal mine,” said Susan J. Lambert of the University of Chicago, a professor of social service administration and an expert in low-wage employment. “First you see hours get short, and eventually more people will get laid off.”…

In decades past, when business soured, companies tended to resort to mass layoffs, hiring people back when better times returned. But as high technology came to permeate American business, companies have grown reluctant to shed workers. Even the lowest-wage positions in retail, fast food, banking or manufacturing require computer skills and a grasp of a company’s systems. Several months of training may be needed to get a new employee up to speed…

The trend toward cutting hours in a downturn lessens the pain for workers in one regard: it moderates layoffs. Many companies now strive to keep payrolls large enough to allow them to easily adjust to swings in demand, adding working hours without having to hire when business grows.

But that also sows vulnerability, heightening the possibility that hours are cut when the economy slows and demand for goods and services dries up.

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One comment

  1. Moopheus

    One has to assume that this affects health and other benefits received by the workers, since at many businesses, there’s a cutoff for hours worked. It would be a big cost savings for the company if they cut someone’s hours to where they no longer got insurance, etc. Which just adds to the financial burden of the workers.

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