Incidence and Duration of Unemployment Spells: Implications on the Wage Differentials of Part‐Time and Full‐Time Workers

1. INTRODUCTION Many studies have analyzed the wage differentials between part-time and full-time workers over the years, but none focus on the potentially important role uncertainty in the labor market plays on the wage differentials of the two groups. With the uncertainties in the labor market, the duration and incidence of unemployment are crucial in determining one's labor market wages. Individuals with a high probability of unemployment may be in an unfavorable position to bargain for high wages. On the other hand, a low probability of unemployment may be associated with relatively high wages. Duration models based on search theories have stressed the relationship between the length of unemployment spells and wages (Ehrenberg and Oaxaca, 1976; Jones, 1988). The argument is that longer durations allow individuals to search for jobs that pay higher wages, and shorter durations tend to be associated with lower wages. Given that part-time workers earn less than full-time workers with identical, observable characteristics (Kosters, 1995; Blank, 1990; Ehrenberg et al., 1988), and the fact that fulltime workers work longer hours, one might expect full-time workers' wages to exceed those of part-timers. (1) However, in recent years part-time employment in the United States has increased substantially, and in certain industries, employers attempt to reduce labor cost by replacing full-time workers with part-time workers. If employers favor part-time workers, then it is more likely that the probability of unemployment for full-time workers would be higher than for part-time workers. In this case, full-time workers' wage advantage may be reduced, and hence the wage differential will narrow. Similarly, if full-time and part-time workers face different durations of unemployment spells, one would expect this difference to influence the wage disparity between the two groups. To analyze the unemployment effects on part-time and full-t ime wages, the author estimates a sample selectivity-adjusted wage equation that includes predicted values of the probability and duration of unemployment. The article then examines the extent to which the unemployment variables affect the wage differential between full-time and part-time workers in different types of industries. The plan of this article is to start with a brief discussion of how unemployment affects individuals' wages (section II). Section III discusses the model that considers the incidence of unemployment, duration of unemployment, and sample selection bias problem inherent in the wage equation. Section IV outlines the method employed to decompose the selectivity-adjusted wage differential of full-time and part-time workers into the portion due to differences in personal characteristics and the portion due to differences in parameters. The next section discusses the data source and the definition of part-time and full-time workers. Section VI discusses the results of the models presented i n section III, and the last section presents the summary and conclusions. II. UNEMPLOYMENT AND WAGE DETERMINATION The theories of job search shed light on the relationship between the duration of unemployment and post-unemployment wages. One major implication of the job search models under imperfect information with a known fixed wage distribution for jobs with infinite durations, and a stationary environment, is that a reduction in the cost of unemployment increases duration of unemployment and expected postunemployment wages (Ehrenberg and Oaxaca, 1976). An individual who has been unemployed for a long period of time is likely to have a rather high reservation wage, given the individual's other characteristics. On the other hand, a short unemployment duration is more likely to be associated with a low reservation wage (Jones, 1988). The argument is that a longer duration of unemployment allows the unemployed to become better informed and to search for jobs offering higher wages than the unemployed who accepts a job offer after a short duration of unemployment. …