Employer Labor Market Power and Working Hours: Evidence from Swedish Layoffs

Abstract: Many part-time workers report a preference for increasing their working hours at the current wage rate. This paper analyzes the role that firm labor market power plays in shaping this involuntary part-time employment in Sweden. We use an identification strategy based on part-time workers who experience an increase in local labor market concentration caused by a large layoff event at another firm within the same labor market. We compare these workers to unaffected colleagues in different occupations within the same plant. Our findings reveal that increased labor market concentration substantially reduces wages and working hours. At the same time their employers increase employment on the extensive margin. To explain these findings, we present evidence that, unlike full-time workers, part-time workers’ productivity falls in weekly working hours. Thus, employers face incentives to increase production by expanding employment on the extensive margin, rather than by raising hours of part-time workers. These findings suggest that firm labor market power contributes to involuntary part-time employment.