The current unemployment rate of 3.5% indicates a tighter labor market than anticipated, but this figure alone doesn’t fully depict the situation. That’s the conclusion of a recent paper from Washington University in St. Louis.
The vacancy rate, calculated as the number of job openings divided by the total jobs, was at a high 7% last year, compared to the expected 4.5% to 5% if the unemployment rate was at 3.5%.
Furthermore, while inflation is easing in other parts of the economy, it remains persistent in the labor market. This is due to the fact that the unemployment rate only reflects those actively seeking employment, but doesn’t show that even employed individuals are reducing their working hours.
A 1% decline in the labor force participation rate from 2019 to 2022 is contributing to the issue, but research suggests it is not the sole explanation. In fact, more than half of the decline in aggregate hours worked in the U.S. between 2019-2022 can be attributed to a reduction in hours worked per person.
As a result of employees “quiet quitting” and only doing the minimum at their jobs, employers must find ways to accommodate or hire more staff, which is a difficult task in the current tight labor market.
Working fewer hours
The research showed that male college graduates who were previously working long hours, over 2,600 hours annually or approximately 50 hours per week, were the most likely to reduce their hours during the pandemic. Prior to 2019, the top 25% of workers, mostly male college graduates, worked between 2,340-2,860 hours per year, but this decreased to 2,236-2,600 hours between 2019-2022, equivalent to a loss of more than a week’s worth of work.
Interestingly, this reduction in hours primarily affected married men, who chose to decrease their work hours for more leisure and social activities. There was little change in work hours for single men, however. In contrast, there was no significant decrease in working hours for women, likely due to lower numbers of women working extreme hours and societal expectations for women to take on more responsibilities at home.
The pandemic gave people the opportunity to reassess their priorities and perspectives on work-life balance, leading some to conclude that working long hours may not be as important as other life aspects. This shift in mindset may result in a positive outcome in the long run.
Unequal split
College-educated, high-earning males can reduce their work hours due to their in-demand skills. Although they already had a strong economic standing, their reduction in hours improved their situation even further.
However, the opposite is true for low-wage workers, who increased their hours by 38 over the three years from 2019 to 2022. The trend of reducing hours, starting from top-level employees, is likely to continue and could spread to other employees.
The persistence of this trend through 2022, despite pandemic-related factors like illness, fear of infection, and childcare needs, suggests it will likely persist.
As employees demand more flexible hours, companies will have to adapt, especially in a tight labor market where employees have more bargaining power. Currently, a 40-hour workweek is standard for full-time employment in the US, but that may change in the future.
