Working Paper: NBER ID: w26852
Authors: R. Jason Faberman; Andreas I. Mueller; Ayegl Ahin; Giorgio Topa
Abstract: We use a mix of new and existing data to develop the Aggregate Hours Gap (AHG), a novel measure of labor market underutilization. Our measure differentiates individuals by detailed categories of labor market participation and uses data on their desired work hours as a measure of their potential labor supply. We show that desired hours vary widely by demographics and detailed labor force status, and that the gap between desired and actual work hours is strongly positively correlated with reported search effort. The Aggregate Hours Gap suggests a more sluggish labor market recovery since the Great Recession than either the official unemployment rate or alternative measures of labor market underutilization. Modest amounts of underutilization among the part-time employed and a substantial degree of underutilization among those out of the labor force account for the disparity. The Aggregate Hours Gap also does well in accounting for wage movements over our sample period.
Keywords: Labor Market Underutilization; Aggregate Hours Gap; Wage Growth
JEL Codes: E24; J21; J60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aggregate Hours Gap (AHG) (C43) | labor market slack (J29) |
| labor market recovery post-Great Recession (J48) | labor market slack (J29) |
| desired work hours (J22) | actual work hours (J22) |
| actual hours worked (J22) | reported job search effort (J68) |
| Aggregate Hours Gap (AHG) (C43) | wage movements (J31) |
| demographic factors (J11) | labor market underutilization (J64) |