Economic Quarterly

Using counterfactual exercises for the transition probabilities between full-time employment, part-time employment for economic reasons (PTER), part-time employment for noneconomic reasons (PTNER), unemployment, and out-of-the-labor-force similar to Shimer (2012), we find that, ceteris paribus, changes in the transition probabilities to and from PTER in the aftermath of the 2007-09 recession were mainly associated with changes in the composition of employment (full- versus part time, and PTER versus PTNER) instead of with changes in the distribution of individuals between employment and non-employment. Consequently, policymakers' attention to PTER implies a broader definition of resource underutilization in the labor market than a simple extensive employment margin as captured by the standard unemployment rate. It brings attention to the intensive employment margin and the quality of employment. Since PTER workers' share is highest in non-routine manual (typically, low-wage) occupations and given recent works on job polarization, it is a challenging task to disentangle cyclical versus structural factors behind an increased number of PTER workers after the 2007-09 recession.