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What Is Underemployment?

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Those who are underemployed are earning less than their skills warrant.

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Underemployment is when workers' jobs are less than their skills, education or availability to work. There are two types of underemployment, according to the international Organization for Economic Cooperation and Development (OECD): visible and invisible.

Visible underemployment includes employees who are working less hours than is typical in their field. These part-timers are willing and able to work more hours, but cannot get full-time work. They often work two part-time jobs, just to make ends meet.

In invisible underemployment, workers are in full-time jobs, but their skills are not being thoroughly used. This type of underemployment is nearly impossible to measure without extensive surveying and a comparative analysis of skills vs job requirements. Very often, the workers themselves don't realize their skills could be better utilized, whether in the same or different jobs. (Source: OECD Glossary, Underemployment)

There is another category of underemployed who fall into a statistical no man's land. Even though they don't have a job, they aren't counted among the unemployed by the U.S. Bureau of Labor Statistics (BLS). Why not? The BLS only includes those who have looked for a job in the last four weeks. Instead, the BLS calls them "marginally attached to the labor force." They have looked for a job sometime during the last year, would like to work, and are available. Within that group there is a sub-group who have just given up looking for work altogether. The BLS calls them "discouraged workers." They could also be considered underemployed, although others say they should be counted to get the real unemployment rate.

Underemployment should also include those who are working full-time but are living below the poverty level, says Paul Osterman, co-director of the MIT Sloan Institute for Work and Employment Research. This category is also known as the "working poor." According to Osterman, "The labor market is just not delivering for Americans what it should be delivering." This definition of underemployment would include everyone who makes less than $10.50 an hour. (Source: U.S. News and World Report, The Ranks of the Underemployed Continue to Grow, October 19, 2011)

Causes of Underemployment:

The most obvious cause of a large rise in underemployment is a recession and the resultant cyclical unemployment. When there are more workers than there are jobs, and employees have been laid off by the thousands, they will take any job they can get to pay the bills.

Another cause of underemployment is technological change. For example, ATM machines have replaced the need for many bank tellers. These used to be the entry-level positions for a career in finance and banking. As a result, many college graduates take what they can as a home health care aide, waiter, or truck driver, since these positions aren't easily replaced by computer technology. (Source: Care2.com, 1 in 2 College Graduates Unemployed or Underemployed, April 22, 2012)

Effects of Underemployment:

The exact effects of underemployment on an economy can remain hidden because it is difficult to measure. However, many of the effects of unemployment also apply to underemployment. First, is higher poverty levels. Without adequate income, families don't buy as much. This reduces consumer demand, slowing business growth. As a result, the nation's Gross Domestic Product (GDP) is lower, as is job growth. It's a vicious, downward spiral.

If underemployment continues, workers lose the ability to update their skills with on-the-job training. These workers may eventually find they can never return to their former field without training, or must retrain for another field, or simply downscale their lifestyle and accept long-term underemployment.

Younger people may find they never get a good start to their career. Forced to take jobs that are beneath their skills, they don't get on the right career track. They don't receive the mentoring needed to get increased responsibility that would update their skills. By the time the recession is over, they are competing with a new batch of high school or college graduates for entry-level positions in their fields.

In extreme cases, youth underemployment can lead to civil unrest and violence. For example, one fourth of all young people were unemployed in the Middle East, leading to the Arab Spring. Unfortunately, these unemployment rates have only risen since then and could get to 29% by 2016. (Source: FT.com, Youth Unemployment to Remain High, May 21, 2012)

Underemployment Rate:

The BLS specifically states it does not measure underemployment, as it is too difficult. However, it does measure one aspect of visible underemployment. That's the category Part-time for Economic Reasons in the "Employment Situation Summary Table A. Household data, seasonally adjusted" report. It separately breaks out workers who are part-time because they could only find part-time work.

The BLS also captures data that can be used to measure other broader definitions of underemployment. Here's the designations:

  • U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force.
  • U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force.
  • U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate).
  • U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers.
  • U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force.
  • U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. (Source: BLS, Table A15. Alternative Measures of Labor Underutilization)

Overeducated and Underemployed:

Underemployment has a more adverse effect on those with college or post-graduate degrees. A 2012 Gallup poll asked the underemployed (which included unemployed in the survey) to rate whether they felt they were thriving or not. Just a little more than half of the underemployed said they were, compared to roughly 70% of their employed colleagues. There was a 17 point discrepancy.

Among those with high school diplomas or less, only 41% said they were thriving, but this was only 10 points lower than their employed colleagues. Underemployment has a greater effect on the life satisfaction for the educated than the less educated. (Source: Gallup Wellbeing, Underemployment Tougher on Highly Educated Americans, June 29, 2011) Article updated June 9, 2012

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