If cutting payroll spending [which would be the presumed motivation during a credit crunch] had been the primary motivation of employers, then they should have cut deepest among their most expensive employees. Firing one person making, say, $2,000 a week saves more than firing three people making $600 a week.
It is true that part-time employment, which is typically low-paying, increased significantly during the recession. However, last week I showed Census data suggesting that employment of people making more than $2,000 a week may have been greater in the 12 months after Lehman Brothers failed than it was before, even while employment of people making less than $2,000 a week fell several million.
Hiring more high-paid people is not a way to reduce payroll spending. Moreover, payroll spending now exceeds what it was when the recession began, yet employment remains millions lower. Apparently, payroll spending is not enough to bring those jobs back.
Another theory of the recession is that it was caused by a lack of demand — fewer employees were needed because employers were selling less to their customers. The low-demand theory is a good description of a couple of industries, like manufacturing and home construction, but if it described the economy as a whole we would have seen all types of employment cut, not just employment of people making less than $2,000 a week.
What seems to have occurred is a cut in personnel rather than payroll.
Another set of theories say that high-paid employees are replacing low- and middle-income employees. This replacement might come from employers’ attempts to cut personnel during the recession, rather than payroll spending. For example, employers might have worried about health insurance and other employment regulation whose costs are proportional to the number of employees they have. In this view, the bank bailout did little to prevent layoffs.
There may be an Austrian interpretation of this as well. The summary picture seems to be one where (1) relatively high-pay employees were substituted for low-pay employees while (2) within low-pay employment, there was a shift from full-time to part-time jobs. If the Great Recession was an Austrian business cycle theory (ABCT) type of bust, it should have been a period of reallocation following malinvestment. Labor would have been mismatched across heterogeneous capital types. During the reallocation one would have expected a bias towards more substitutable (i.e., mobile across job types). If higher levels of human capital (which typically correspond to higher pay) are more substitutable (or, using other economics terminology, if high-level human capital tends to have relatively low asset-specificity) then it would not be surprising to see a shift, for a given payroll, towards higher paying jobs. Also, low-paid workers may be more substitutable in the form of part-time jobs than full-time jobs.
Furthermore, given the uncertainty associated with a macroeconomic reallocation, full-time jobs may be viewed as having more "putty-clay" characteristics. Benefits packages and longer-term employment contracts may be avoided during a time when the profitable directions of reallocation have yet to be discerned.
Counter-examples abound to some of my ramblings above. For example, a software programmer's human capital may well have higher asset-specificity than many manual laborers. On the other hand, I tend to think of white-collar workers generally as more easily changing industries at comparable pay than blue-collar workers are. Ultimately these are empirical questions.
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