State of the Labor Market

January 2020 Jobs Day Preview: Average Working Hours Are on the Decline

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A reduction in average hours may not be a sign of impending doom for the labor market.

The US labor market may have slowed down, but it’s growing on a variety of metrics, including employment and wages which are still trending up. Working hours, however, are a noticeable exception. Average weekly work hours have been shrinking on a year-over-year basis, falling by an average of 0.6% the past three months. This has happened as growth in average weekly earnings slowed down from 3.2% in September to 2.4% in December. Continued reduction in hours could further hinder weekly earnings growth and, as a consequence, consumption growth moving forward.

Weekly hours aren’t declining because overall employment has shifted toward industries where employees work fewer hours. The overall trend is very similar after holding industry employment constant.

The trend doesn’t seem to be driven by a shift toward part-time work pulling down average hours either. The overall part-time rate has been slowly declining in recent years and has been relatively flat over 2019. More workers would have to be working part-time to potentially explain a sizable part of this trend.

A reduction in average hours isn’t necessarily a sign of impending doom for the labor market. Average weekly hours for production and nonsupervisory workers have been declining for nine straight months, but this metric didn’t grow year-over-year for 25 straight months during 2015, 2016, and 2017. Yet lower average working hours contribute to lower weekly earnings growth — which may hinder economic growth moving forward.

Elsewhere in the January report, I’ll be looking for:

  • The impact of revisions to the average pace of job growth, as new data is likely to show job growth in 2019 was weaker than first reported;
  • Whether the sharp downturn in wage growth for production workers in December was an aberration;
  • And, if the share of people in their prime working years continues to inch upward and get closer to 2000-era levels.
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