The Shadow Margins of Labor Market Slack

63 Pages Posted: 16 Mar 2020 Last revised: 16 May 2021

See all articles by Jason Faberman

Jason Faberman

Federal Reserve Bank of Chicago; Bureau of Labor Statistics - Office of Employment and Unemployment Statistics

Andreas I. Mueller

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Aysegul Sahin

University of Texas at Austin

Giorgio Topa

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: March 2020

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.

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Suggested Citation

Faberman, Jason and Mueller, Andreas I. and Sahin, Aysegul and Topa, Giorgio, The Shadow Margins of Labor Market Slack (March 2020). NBER Working Paper No. w26852, Available at SSRN: https://ssrn.com/abstract=3554873

Jason Faberman (Contact Author)

Federal Reserve Bank of Chicago

230 South LaSalle Street
Chicago, IL 60604
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Bureau of Labor Statistics - Office of Employment and Unemployment Statistics ( email )

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Washington, DC 20212
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Andreas I. Mueller

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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IZA Institute of Labor Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
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Aysegul Sahin

University of Texas at Austin ( email )

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Austin, TX 78712
United States

Giorgio Topa

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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