The long-term effects of underemployment shocks on voluntary part-time employment

This paper examines the long-term effects of underemployment shocks on part-time employment, with a particular focus on voluntary part-time work. We use regional datasets for the European Union and the United States covering the period 2006-2019. Our empirical strategy combines a difference-in-differences framework with a shift-share instrument for underemployment shocks. In the EU, underemployment shocks are driven not only by an increase in part-time employment, but also by a decrease in the share of part-time employees who are satisfied with their working hours. Underemployment shocks have persistent effects, including a lasting negative impact on voluntary part-time employment. A one percentage point increase in the underemployment rate leads to a voluntary part-time employment rate that is 0.28 percentage points lower five years later. These effects are particularly pronounced among non-tertiary-educated women and in Western Europe. In Central and Eastern Europe, as well as in the US, we do not find statistically significant negative long-term effects of underemployment shocks on voluntary part-time employment.