NBER WORKING PAPER SERIES THE WELL-BEING OF THE OVEREMPLOYED AND THE UNDEREMPLOYED AND THE RISE IN DEPRESSION IN THE UK David N.F. Bell David G. Blanchflower Working Paper 24840 http://www.nber.org/papers/w24840 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 July 2018 The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2018 by David N.F. Bell and David G. Blanchflower. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. The Well-being of the Overemployed and the Underemployed and the Rise in Depression in the UK David N.F. Bell and David G. Blanchflower NBER Working Paper No. 24840 July 2018 JEL No. I20,I31,J64 ABSTRACT In this paper we build on our earlier work on underemployment using data from the UK. In particular, we explore their well-being based on hours preferences rather than on involuntary part-time work used in the prior literature. We make use of five main measures of well-being: happiness; life satisfaction; whether life is worthwhile; anxiety and depression. The underemployed have higher levels of well-being than the unemployed and disabled but lower levels than any other group of workers, full or part-time. The more that actual hours differ from preferred hours the lower is a worker's well-being. This is true for those who say they want more hours (the underemployed) and those who say they want less (the over employed). We find strong evidence of a rise in depression and anxiety (negative affect) in the years since the onset of austerity in 2010 that is not matched by declines in happiness measures (positive affect). The fear of unemployment obtained from monthly surveys from the EU has also been on the rise since 2015. We find evidence of an especially large rise in anxiety and depression among workers in general and the underemployed in particular. The underemployed don't want to be underemployed. David N.F. Bell Division of Economics Stirling Management School University of Stirling FK9 4LA United Kingdom [email protected] David G. Blanchflower Bruce V. Rauner Professor of Economics 6106 Rockefeller Hall Dartmouth College Hanover, NH 03755-3514 and NBER [email protected] Wednesday, June 27, 2018 - 11:06:53 AM Underemployment has replaced unemployment as the main measure of labor market slack in the UK in the years since 2008. Indeed, as noted by Jensen and Slack (2003), 'underemployment was proposed as a more exhaustive and hence more valid measure of employment hardship than mere unemployment'. Underemployment is up in the UK since the Great Recession and has not returned to pre-recession levels. Despite a rise in happiness there has been a marked increase in anxiety and depression since around 2014 and a rise in people's expectations about unemployment even as the unemployment rate continued to drop. We find a big rise in depression among the underemployed in recent years. In previous work, we have focused on the extent of underemployment, the characteristics of the underemployed (Bell and Blanchflower, 2011, 2013, 2014, 2018a, 2019), and most recently on its role in wage determination (Bell and Blanchflower, 2018b). We have shown that underemployment increased sharply (and overemployment decreased) at the start of the Great Recession in 2008 across much of Europe. In the UK, underemployment had not returned to its pre-recession level at the beginning of 2018, even though unemployment rate was at a 50-year low. We have also shown that the underemployed are typically young, less well-qualified and poorly paid. Finally, arguing that the existence of slack on the internal labor market reduces pressure on employers to increase pay rates (Bell and Blanchflower 2018b), we have shown that since the Great Recession measures of underemployment enters wage equations significantly negatively for the UK, whereas the unemployment rate is insignificant. We find similar results for the USA (Bell and Blanchflower, 2019). Conventional supply models predict that workers who do not their desired wage rate and hours combination suffer a welfare loss. This paper extends our previous work on both underemployment and overemployment. We show that welfare loss can be evidenced using a number of indicators of well-being, such as life satisfaction, self-worth and depression. We use the UK Annual Population Survey (APS) which has combined measures of well-being with data on workers’ hours preferences. This unlikely combination has been in place since the UK Prime Minister, David Cameron, decided to try to deflect attention from the UK’s poor economic performance and instead focus on its wellbeing. We also compare well-being across different labor market states. It turns out that the underemployed are especially unhappy: less so than the unemployed and disabled but more so than any other group of workers. This is true controlling for their lower wage. The overemployed are also less happy than those who are content with the combination of hours and pay on offer. Classical supply models predict that workers who do not find a job which matches their desired combination of wage rate and hours will suffer a welfare loss. However, this prediction sits rather oddly with the observation that workers’ weekly hours tend to cluster around particular values such as 38 or 40. In practice, following Lewis (1969), one can think of observed combinations of wage rates and hours as a compromise between workers’ willingness to supply labor and firms’ demand preferences. In these circumstances, various elements of the employment bargain may be set by “custom and practice” to reduce negotiation costs. Thus, rather than negotiate separately with each employee, firms find it efficient to set hours of work and pay rates for all workers through negotiation with worker representatives. Production constraints may also make it efficient for employers to insist on some uniformity on working time across the workforce. Further, when faced with fluctuations in demand, employers may respond by varying workers’ hours, hoping that 1 Wednesday, June 27, 2018 - 11:06:53 AM such variation is temporary (see Oi, 1982). From the employer perspective, this response is generally less costly than varying productive capacity by hiring or firing workers. Thus, for a variety of reasons, including firm custom and practice and firm response to variations in demand, workers may find themselves “underemployed”. Similarly, some may find themselves “overemployed”. Whatever the reason, the outcome may be less than ideal from their perspective. And the standard theory would still predict that the greater the gap between the hours that workers would prefer and those that they are offered, the greater their welfare loss. This might be manifest in a number of ways. These might include lower life satisfaction, less happiness, more anxiety, poorer mental health, and possibly poorer physical health. Those who want to work fewer hours may also experience such negative consequences. In designing policy responses to worker dissatisfaction with working time, it is important to understand how the negative effects of hours deficits on workers compare with effects on those who feel they work too many hours. Thus, one might ask whether those who wish to increase their workweek by, say, four hours experience similar reductions in well-being to those who wish to reduce their working time by four hours? There is no theoretical reason to expect that workers would respond symmetrically to hours deficits and surpluses. This question can only be resolved empirically. Relatively little is known about who the underemployed or the overemployed are. In this paper we explore the well-being of both groups and find they are relatively unhappy using the APS. It turns out that the underemployed are happier than the unemployed and disabled but less happy than any other group of workers. They are much less happy than either full-timers or voluntary part-timers. The more that actual hours differ from preferred hours, the lower the worker's well- being. This is true for those who say they want more hours (the underemployed) and those who say they want less (the over employed). We also present new evidence that shows a marked rise in depression in the UK since 2014 using the UK Labour Force Survey (LFS) data. This rise is especially marked among the underemployed. The timing seems to match closely the imposition of austerity in the UK in 2010. The rise in underemployment In our previous papers, we examined underemployment in the UK using micro-data (Bell and Blanchflower, 2011, 2013, 2014, 2015, 2018a, 2018b). The data used in this and the previous studies are the quarterly LFS. In this paper, we use LFS data for the period January 2003 to April 2018. Note that the APS and LFS are closely linked: the former uses data combined from two waves of the LFS, but also occasionally collects information on respondent well-being, which makes it ideal, given the subject matter of this paper. The simplest underemployment variable to construct using the LFS is the involuntary part-time rate using the “part time-wants full-time” (PTWFT) category which is included as one possible response for the variable ftptw. This response is used to construct the UK time series in Chart 1. We express this variable as a proportion of the labour force, which is the same denominator used to calculate the unemployment rate.