Part Time Pay Penalties Persisting in US Labor Markets
30 Pages Posted: 29 Mar 2021
Date Written: January 1, 2020
Part time employment fulfills an important matching role in the labor market, given many workers’ preference for less than full time workweeks with many employers’ demand for less than full time labor input for certain jobs. Do part time workers in the US labor market earn less per hour than otherwise comparable full timers? If so, which workers, where, by how much and why?
The pay disparity, or disadvantage for working part time workweeks, is estimated here with a large, pooled data set, using the Current Population Survey’s (CPS) Outgoing Rotation Group (ORG)’, from 2003 to 2018. It contains 688 thousand matched observations. The estimation in intended to replicate and update those from an earlier period, 1995-2002 (Hirsch, 2005). The earnings disparity is found to be greater in the more recent than previous period. The estimated log earnings models sequentially start with the unadjusted, Raw pay penalty for usually working part time hours, with state and year fixed effects -- which is 52%. The Partially Adjusted part-time penalty shows that workers earn 29.3 percent less per hour worked than other workers with similar demographic characteristics and education levels. The Fully Adjusted part-time wage penalty is somewhat smaller but still substantial, 19.8 percent, when the worker’s industry and occupation as well as demographics and education are controlled. This suggests that there is a wage penalty for being relegated to certain lower paying sectors or job types dominated by part-time work.
By race and ethnicity, the fully adjusted wage penalty is across-the-board – it is 20.7 for white, 20.2 percent for African-American and 14.2 percent for Hispanic-American workers, suggesting majority workers are just as prone to the part-time wage penalty. By gender, the adjusted wage penalty is 15.9 percent for women and 25.8 percent for men. This suggests that men pay a noticeably higher price for working part time, although women constitute almost 4 in 5 of those part time employed, so women are more likely to bear the brunt of the wage penalty albeit smaller in relative size.
By race and gender, white men face the highest wage penalty, at 28.1 percent, followed by black men at 24.6 percent, while black women’s penalty is 17.2 percent and white women 16.4 percent and Hispanic men 14.2 and women 12.3 percent, respectively. The racial gap in part-time wage penalties likely reflects a combination of whites’ advantage in wages at their full-time jobs along with a shared disadvantage when in a part time job.
By reason for working part time, the part-time wage penalty is greater for those working part-time but wanting a full-time job, a double penalty of fewer hours and less in wages: those with reduced hours because of “slack work and business conditions’ experienced a 22.3 percent wage penalty while those in part-time work because they could not find a full-time job experienced a 29.5 percent wage penalty. Those working part-time but did not indicate they want full-time work still experienced a wage penalty, 18.3 percent, though less of a penalty than those who were part-time ‘for non-economic reasons.’ Thus, by reason for working part time, working less than 35 hours involuntarily comes with a substantially larger pay penalty. The more voluntary the reason the smaller is the pay penalty, is not consistent with compensating wage differential theory, which would suggest that workers with a stronger preference for part time hours would be willing to sacrifice more pay to attain that. The finding for women, in particular, is more strongly in opposition to the theory—even just among those paid by the hour. Labor unions reduce the pay penalty for part timers, with a union pay premium among part timers of 16%.
By number of weekly hours, the part time pay penalty reflects in large part a “shorter hours” penalty. The pay penalty for those whose hours are usually 1 to 19 is 30%. It is similar, about 28 percent, for those working 20 to 29 hours. Working 30 to 34 hours incurs a somewhat smaller, 22 percent penalty. Even 35 to 39 hours entails an 11 percent penalty. This suggests full time work is better conceived of working 40 or more hours, when it comes to pay. By type of industry, there is some variation in the pay penalty size, with no penalty in only one of the 50 intermediate level industries, and as high as near 50% in one -- most range from 15% to 40% earnings disparity. The pay penalty is well above average in several industries--49% in Rental/leasing services and at 44% in Petroleum and coal. Penalties are higher in Retail Trade, at 32 percent – an industry where 29 percent of the employed usually work part time. Within Retail, in Clothing Stores, the pay penalty is as high as 49 percent for those working shorter hours and even 27 percent for those with hours between 35 and 39.
An individual fixed effects model, to replicate Hirsch (2005), using 1995-2002 CPS panel data—to try to identify a “Pure” pay penalty that considers all the possible unobserved differences between those working full time and part time. It focuses only on the subset in the sample who have changed job status between full time and part time--about 10% of the CPS matched sample, in both directions, over the course of a 12-month interval. When the worker a year later has moved to a different occupation and industry, arguably a pure fixed effect model because there are likely not in the same firm, there is still somewhat of a substantive penalty, albeit reduced -- about 12%. This is somewhat higher than found for the earlier period.
The size of the “unexplained” pay differential for part time working, especially when involuntary but even when it is voluntary, is sufficient to warrant policies and standards that would curb or prevent this widening disparity in earnings. Policies that would dis-incentivize hours reduction and over-reliance on part time job creation at the expense of full time – and incentivize a transfer of hours to the involuntarily part timers who prefer full time jobs at longer hours.
Keywords: Part time employment; Pay penalty; Underemployment; Work hours; Pay differentials; Pay gaps
JEL Classification: J21; J22
Suggested Citation: Suggested Citation