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British wages and part-time work

The reason for low wages in Britain that no one mentions


Oct 28th 2015, 11:40 BY C.W. | LONDON
HAVING returned earlier this year from a stint in the Washington office, your correspondent has
been struck by one of the big differences between American and British economic discourse. In
both countries since the crisis, real wage growth has been pretty measly. There are many
reasons for this, which are detailed here and here. One putative reason for low wage growth,
argue many American economists, is that the number of American workers who are "part-time for
economic reasons" (PTER) is too high. Someone is PTER if they want to work full-time, but can
only find a part-time job. Some economists in America are obsessed with the PTER. But in
Britain barely anyone mentions it.
So what's the evidence that a high PTER rate can hold down wages? Since 2008 the number of
Americans who are PTER has doubled. A Chicago Fed paper finds that a 1% increase in the

PTER rate is associated with a 0.4% fall in real wage growth, even after controlling for
the effects of other measures of unemployment. The impact is especially strong for
worse-off workers. David Blanchflower of Dartmouth College and Andrew Levin of the
IMF find similar results in a paper published in March. When the PTER rate is high,
workers may feel unable to ask for higher wages, since what they really want is more
hours. Nervousness about asking for more pay may ripple through the labour market,
says Daniel Aaronson of the Chicago Fed.
Now, in Britain, the PTER rate has also increased steeply since the crisis. In 2007 9% of
the British workforce wanted a full-time job, but had to stick with a part-time one. By 2013
the rate had risen to 18% of the workforce. At the same time as this was happening,
British real wages were doing poorly. Growth was negative in 2008-14, ending up about
15% lower than it would have been in the trend growth rate in real wages had kept up
during the crisis (see first chart).

From what I can see, though, no one has tried to estimate the impact of the British PTER
on wages. Here is one attempt. What would have happened if the PTER rate had not
increased during the crisis? Let's assume that the effect on wages is the same as it is in America
(ie, a 1% increase results in a 0.4% fall in real wage growth). This assumption is almost certainly
not accurate, but it's not bad. Then, we can estimate the effect: British wage growth up to 2014
would not look anywhere near as bad (see second chart).

All this may explain why, in 2015, wage growth has started to pick up a little bit, despite
little evidence of productivity improvements. So far this year the PTER rate has fallen by
about 1 percentage point and it is still tumbling. If wage growth is to continue, employers
will need to bite the bullet and take on more people full-time.

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