The supply shortages in the labor market during the Covid pandemic have been well documented, but most of the narrative has been around people either leaving the labor market entirely or moving to new jobs.

Research from the University of Texas at Austin explains, however, that there has also been a noticeable decline in the number of hours people are looking to do. Indeed, this decline in the desired working hours has contributed far more than the fall in the labor force participation rate.

“We document a sharp decline in desired work hours during the pandemic that persists through the end of 2021 and is roughly double the drop in the labor force participation rate,” the authors say. “Our findings suggest that, as of 2021 Q4, the labor market is tighter than suggested by the unemployment rate and the adverse labor supply effect of the pandemic is more pronounced than implied by the labor force participation rate.”

Labor market underutilization

The researchers analyzed data from the Job Search Supplement of the Survey of Consumer Expectations, which asks participants about their employment situation, their work preferences, and their job search behavior. The aim is to understand any changes in the willingness of respondents to work over time.

The 2020 and 2021 editions of the annual survey include questions on how the pandemic may have influenced the demand for work and labor market expectations. The researchers believed that combining this desired labor supply with actual hours worked gives them a good insight into labor market underutilization.

The analysis reveals that not only were people leaving the labor market in large numbers but there was also a significant reduction in the number of hours people want to work.

“The decline in desired work hours is more than double the decline in the labor force participation rate and is just as persistent throughout the pandemic,” the authors explain.

A common problem

What’s more, the researchers don’t believe that this decline is driven primarily by the growing childcare demands placed on women during the pandemic. Instead, the decline is consistent across demographic groups, with a slightly larger decline among those without a degree.

“The decline is also concentrated among what we refer to as the intensive margin of labor force participation,” the authors continue. “This margin represents individuals who prefer to work infrequently, and when they do, they generally prefer part-time work hours.”

The researchers believe this decline has been largely caused by the pandemic, however, especially among those working in roles with higher potential exposure to the virus. As such, they believe that data from the backend of 2021 is likely to show a reversal of this trend.

The authors also believe that the reassessment of people’s labor market decisions is also underpinning the changes in wage expectations seen in the first half of 2022.

“Our findings suggest that an overall lower willingness to work has led to a contraction in labor supply that persists throughout the Covid pandemic,” the authors conclude. “This decline contributed to the rapid tightening of the labor market following the onset of the pandemic.”