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

Abstract: Many part-time workers report a preference for increasing working hours at their current wage rate. This paper analyses the role that firm labor market power plays in shaping involuntary part-time work. We use data on Swedish workers and a novel identification strategy that compares workers who experience a large layoff event at another potential employer to unaffected workers within the same plant. We find a large negative elasticity for wages with respect to local labor market concentration and a near-zero elasticity for hours on average. To investigate the effects on involuntary part-time work, we focus on workers who initially work part-time and find a large relative decrease in hours. We show that plants facing less labor market competition increase employment on the extensive margin symmetrically across all workers. To explain these findings, we estimate workers’ productivity-hours profiles. Unlike full-time workers, part-time workers face decreasing returns to scale. Therefore, employers face incentives to increase production by expanding employment on the extensive margin, rather than raising hours of part-time employees.