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Who counts as employed?: informal work, employment status, and labor market slack

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Abstract

Several recent studies find that as of 2015, a significant share of working-age adults in the United States participates in nonstandard work arrangements. Such arrangements tend to lack long-term employment contracts and are often referred to as ?gig economy? jobs. This paper investigates the implications of nonstandard or ?informal? work for the measurement of employment status and labor market slack. Using original survey data, we find that as of 2015 roughly 37 percent of nonretired U.S. adults participated in some type of informal work, and roughly 20 percent participated in informal income-generating activities that did not exclusively involve renting out their own property or selling their own goods. The survey also elicits an individual?s employment status according to the definitions of the Bureau of Labor Statistics (BLS). While not the majority, a significant share of those who engage in informal work are classified as not being in the labor force; if all informal workers were counted as employed, the U.S. labor force participation rate (as of 2015) would have been 2 percentage points higher. In addition, individuals who are classified as working ?part-time for economic reasons??those who would like a full-time job but cannot obtain full-time hours?have the highest participation rate in informal work and the highest average hours per month. This latter finding suggests that informal work embodies labor market slack, and we offer several pieces of evidence that support the thesis that workers engage in informal work as a way to compensate for weak labor demand and may therefore drop informal work as formal labor market conditions improve. To estimate the amount of labor market slack embodied in informal work, we convert the total hours of informal work performed by those classified as employed part-time into a number of full-time job equivalents. This exercise yields a figure that ranges from roughly 275,000 to roughly 400,000, depending on the specifics of the calculation. At the same time, we point out that a significant share of informal work hours offer higher wages than what the same individuals earn in their formal jobs. Therefore, formal wages may need to increase by a relatively large margin moving forward in order to attract additional labor into the formal sector.

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  • Anat Bracha & Mary A. Burke, 2016. "Who counts as employed?: informal work, employment status, and labor market slack," Working Papers 16-29, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:16-29
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    References listed on IDEAS

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    1. Daniel Aaronson & Scott Brave & David Kelley, 2016. "Is There Still Slack in the Labor Market?," Chicago Fed Letter, Federal Reserve Bank of Chicago.
    2. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," NBER Working Papers 22667, National Bureau of Economic Research, Inc.
    3. Stephanie Aaronson & Tomaz Cajner & Bruce Fallick & Felix Galbis-Reig & Christopher Smith & William Wascher, 2014. "Labor Force Participation: Recent Developments and Future Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 197-275.
    4. Katharine G. Abraham & John Haltiwanger & Kristin Sandusky & James R. Spletzer, 2013. "Exploring Differences in Employment between Household and Establishment Data," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 129-172.
    5. Anat Bracha & Mary A. Burke & Arman Khachiyan, 2015. "Changing patterns in informal work participation in the United States 2013–2015," Current Policy Perspectives 15-10, Federal Reserve Bank of Boston.
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    1. Bracha, Anat & Burke, Mary A., 2018. "Wage inflation and informal work," Economics Letters, Elsevier, vol. 171(C), pages 159-163.
    2. Dmitri Koustas, 2020. "Insights from New Tax-Based Measures of Gig Work in the United States," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(03), pages 5-9, September.
    3. Bańbura, Marta & Bobeica, Elena, 2023. "Does the Phillips curve help to forecast euro area inflation?," International Journal of Forecasting, Elsevier, vol. 39(1), pages 364-390.
    4. Katharine G. Abraham & John C. Haltiwanger & Kristin Sandusky & James R. Spletzer, 2017. "Measuring the Gig Economy: Current Knowledge and Open Issues," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 257-298, National Bureau of Economic Research, Inc.
    5. Christopher Alex Hooton, 2017. "America’s online ‘jobs’: conceptualizations, measurements, and influencing factors," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(4), pages 227-249, October.
    6. Olena Kostyshyna & Corinne Luu, 2019. "The Size and Characteristics of Informal (“Gig”) Work in Canada," Staff Analytical Notes 2019-6, Bank of Canada.

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    Keywords

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    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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