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Dionissi Aliprantis |

Research Economist

Dionissi Aliprantis

Dionissi Aliprantis is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in applied econometrics, labor and urban economics, and education. His current work investigates neighborhood effects on education and labor market outcomes.

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08.29.2012

Economic Trends

The Great Recession’s Impact on Hours Worked and Employment

Dionissi Aliprantis

Employers can respond to the economy by hiring, not hiring, or firing employees, as well as by choosing the hours worked by employees. It is not immediately obvious how these choices might be related over a given time period. In an economic downturn, for example, employers might decrease the number of workers they employ and increase the hours of their remaining employees so as to decrease their costs from benefits. Or employers might choose to decrease the hours their employees work to avoid laying off or firing employees. Or employers might decrease the number of workers and the hours of those remaining simultaneously.

To investigate the impact of the Great Recession on hours worked I retrieved Current Employment Statistics (CES) survey data from the Bureau of Labor Statistics. I began by examining trends in both the level of total private payroll employment and the average weekly hours worked by production and nonsupervisory private employees. Those data show there was a major drop in both employment and average hours worked during the Great Recession.

However, the drop relative to long-term trends is different for each of these variables. While the drop in aggregate employment appears as a deviation from a positive long-run trend, the decrease in hours during the Great Recession only seems to be an acceleration of a long-run decrease in weekly hours worked.

Decomposing these series into sectors, we can see the well-documented growth of the U.S. service sector. Employment in the goods-producing sector has declined only relative to employment in the service-providing sector, not in the absolute number of jobs.

This means that, although there was a smaller absolute loss of jobs during the Great Recession in the goods sector relative to the service sector (3.6 million and 4.1 million jobs lost, respectively), the share of jobs lost was much greater in the goods-producing sector (16.2 percent versus 4.4 percent). This loss came after employment in the goods-producing sector had already declined from 24.6 million to 22.0 million between January 2000 and December 2007.

The long-run decrease in average hours worked can be better understood by examining the data on the average hours worked in each sector, together with data on the growth of the service sector. The increase in the share of employees working in the service sector, where employees typically work fewer hours, can account for much of the long-run decrease in hours. However, the shift to the service sector would have had a muted impact on hours if not for the decrease in hours in that sector over time. Between January 1964 and December 2007, average weekly hours in the service sector fell from 37.5 hours to 32.4, with most of the decrease occurring by 1990.

Focusing on the impact of the Great Recession, we see that the changes in average hours worked were larger in both absolute and relative magnitude for the goods-producing sector. Average hours for goods-producing employees fell by 1.6 hours between December 2007 and June 2009, a 3.9 percentage point drop. Meanwhile, average hours fell just 30 minutes over the same period for private service-providing employees, a 1.5 percentage point decrease.

Returning to the first chart, we see that average hours worked have returned to levels experienced prior to the Great Recession. Service-providing hours had returned to their December 2007 level by May 2012, and the recovery in goods-producing hours has been strong enough that the average weekly time worked in that sector actually increased by 24 minutes between December 2007 and May 2012. Since there is historically a positive correlation between the lagged change in average weekly hours and the current change in employment, this recovery in average hours could be a positive indicator for future employment.