Key Takeaways
- Underemployment assesses the effective utilization of the labor force regarding skills, experience, and availability to work.
- It highlights situations where individuals are working in low-paying or low-skill jobs involuntarily.
- Underemployment can have visible and invisible types, reflecting various scenarios of underemployed conditions.
- Factors like economic recessions and market shifts contribute to underemployment.
- The unemployment rate doesn’t provide a complete picture, missing nuances like skill mismatch or discouraged workers.
Understanding Underemployment
Underemployment is calculated by dividing the number of underemployed individuals by the total number of workers in a labor force.
Types of Underemployment
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Visible Underemployment: This occurs when individuals work fewer hours than necessary for a full-time position in their chosen field. They often take multiple part-time jobs to meet their financial needs.
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Invisible Underemployment: In this scenario, individuals can’t find jobs aligning with their skill set and accept roles way below their qualification level, often with much lower pay.
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Disguised Underemployment: A third category covers individuals who have left the workforce, no longer seeking employment due to repeated failures, per the Bureau of Labor Statistics’ definition of “not in the labor force.”
During the economic downturn of early 2020, such cases surged, reflecting changes in working conditions and financial crises. Tracking these workers remains challenging.
Causes of Underemployment
Economic Recessions
Economic downturns often lead to company downsizing, resulting in qualified workers stuck in low-skill or part-time jobs. This was evident during the global crisis when underemployment spiked dramatically.
Shifts in Job Market
Technological advancements and changing job descriptions can leave workers without appropriate opportunities. Those unable to retrain or adapt may end up underemployed.
Weaknesses of the Unemployment Rate
The unemployment rate only accounts for those actively seeking work and ignores underemployment nuances. As of May 2020, the U.S. unemployment rate was 13.3%, but underemployment stood at 22.8%, underscoring the need to consider unused or undervalued skills.
Labor Force Participation Rate
The participation rate measures the percentage of civilians over 16 either working or seeking work. It’s a more inclusive metric than the unemployment rate alone.
Varying Unemployment Metrics
The BLS provides six unemployment rates from U-1 to U-6, with U-6 being the most inclusive—it accounts for discouraged workers and those in part-time employment seeking full-time roles.
Example of Underemployment
Consider a qualified engineer working as a pizza delivery man due to a lack of suitable job options. Another example is someone working part-time in an office job but seeking full-time work. In both cases, the economy underutilizes these individuals’ potential.
Related Terms: unemployment, discouraged workers, visible underemployment, invisible underemployment.
References
- U.S. Bureau of Labor Statistics. “Labor Force Statistics from the Current Population Survey: Concepts and Definitions”.
- Federal Reserve Bank of St. Louis. “Not in Labor Force”.
- Pew Research Center. “How the Coronavirus Outbreak Has – and Hasn’t – Changed the Way Americans Work”.
- NCBI. “COVID-19 and the March 2020 Stock Market Crash. Evidence From S&P1500”.
- AP. “Jobless Rate Spikes to 14.7%, Highest Since Great Depression”.
- U.S. Bureau of Labor Statistics. “Job Market Remains Tight in 2019, as the Unemployment Rate Falls to Its Lowest Level Since 1969”.
- Federal Reserve Bank of St. Louis. “Unemployment Rate”.
