Why Europeans work part-time? A cross-country panel analysis

This paper aims to identify the relative contribution of the business cycle and structural factors to the development of part-time employment in the 15 Member States of the European Union before the 2004 enlargement (EU-15) over the 1980s and 1990s. To do so, it exploits both cross-sectional and time series variations in available data over the past two decades. Key results include the business cycle that is found to exert a short-term negative effect on part-time employment developments, although this effect fades away over the two-decade period considered. This finding is consistent with firms utilising part-time employment as a means of adjusting their labour force to economic conditions. Correspondingly, involuntary part-time employment is found to be counter-cyclical, being higher in troughs of economic activity. Splitting our sample reveals a very significant effect of the business cycle on the rate of part-time work for young and male prime-age workers. Conversely, the effect is very weak for women and insignificant for older workers. Institutions and other structural factors are also found to be significant, longer run determinants of the rate of part-time employment. Changes in legislation affecting part-time employment are found to have a strong and positive impact on part-time employment developments. Moreover, employment protection legislation is positively correlated with the part-time employment rate (PTR), which is consistent with the use of part-time work as a tool for enhancing flexibility in the presence of rigid labour markets. Less robust evidence suggests the presence of unemployment traps for some potential part-time workers. Cross-country evidence also indicates that the lower labour costs borne by firms when employing part-time workers have a large and positive influence on the PTR. Overall, a contribution analysis shows that the main structural and institutional variables generally explain the development in the part-time rate in the EU countries fairly well, while this is obviously not the case in the United States.