Underemployment

Updated on April 24, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Underemployment Meaning

Underemployment is said to occur when the skills, experience, and availability of employees and staff members are not utilized to the extent they should be. When a skilled individual does not get an opportunity to show their worth, the employment becomes underemployment. 

Underemployment Meaning

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There are instances where people are hired as part-time employees, though they are available for the rest of the day. They might be employed in a position that does not fully utilize what they know and how they could help organizations grow with their knowledge and experience. In addition, there are a few who remain underpaid or even opt for voluntary underemployment.

Key Takeaways

  • Underemployment refers to the underutilization of the workforce employed by a firm. 
  • It is of two types – visible, which can be noticed and counted, and invisible, which remains unnoticed and could not be added to the existing figures.
  • Global crises, employment market changes, and increased labor supply against limited demand are the main causes of underemployment.
  • The US Bureau of Labor Statistics (BLS) does not measure the condition but divides the instances per multiple criteria and provides specific underemployment rates ranging from U-1 to U-6.

Underemployment Explained

Underemployment is an employment condition where organizations utilize labor skills only to a certain limit. They may do it voluntarily or involuntarily, despite knowing that they can utilize the skills, experience, and availability of some employees more than they usually do and enhance the growth and productivity of the organization.

The underemployed individuals belong to, but are not confined to, the following categories:

  • Skilled but underpaid.
  • Skilled but do not utilize their skills fully in a job.
  • The ones whose availability is necessary for the growth of a firm but employers hire them as part-timers.
  • Those who feel they cannot utilize their skills, effort, and time to the utmost extent in the job they are into.

This underutilization of skills can either be visible or invisible. There are scenarios where employees or workers do not get an opportunity to work full-time, though their full-time availability might double the productivity of the companies. Such people may engage in multiple part-time jobs to increase their earnings. Such instances are easily visible to the analysts around. Hence, they are easy to count on while extracting underemployment figures.

Underemployment understanding

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On the other hand, some workers belong to the invisible underemployment category. These are the cases where employees and workers enjoy full-time employment. Though they do not utilize their primary skills in their role, they accept the offer to have a job for their namesake. Those who get underpaid for skills and experience and continue with the job also fall under this category. These figures are less likely to be identified and added to the number of underemployed individuals in an economy. Hence, they are termed invisible underemployment rates.

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Formula

Users can obtain the underemployment rate by dividing the number of underemployed individuals by the number of individuals in the workforce. The calculation is similar to that of unemployment, with a different numerator.

Underemployment Rate= (Number of Underemployed)/(Size of Workforce)

Examples

Since this concept does not have a one-size-fits-all solution, it is important to understand it conceptually to be able to grasp the intricate details. Let us understand the concept of involuntary and voluntary underemployment with the help of a couple of examples.

Example #1

When an economic downturn hits a country’s economy hard, people are out of jobs. A university graduate, Mark, who can easily get a white-collar job must work at a department store to make ends meet. Herein, while the graduate can be working in a much higher-paying job that would have suited his skill set, he has to work in a sub-optimal environment to make ends meet. This leads to underemployment.

Example #2

Since 1960, only a few economies around the world have been able to rise above the middle-income to high-income countries according to the world bank. For instance, China has about 500 million people with no high school diplomas. That accounts for around 74% of their workforce.

Therefore, that makes China the least educated country for middle-income individuals. To reduce the effects of the underemployment rate, quality education at an early stage would help an economy make the transition to a significant number of high-income earning individuals.

Causes

While the causes of the increment in the underemployment rate can vary from economy to economy or even react differently to different situations within the economy. Let us understand them through the discussion below.

Underemployment is not a chosen condition all the time. It is the situation, and the intentions of the people involved that lead to voluntary underemployment. For example, when an employer hires over-qualified people, it is either because they are not getting a relevant candidate for the post or they intend to make them serve multiple purposes at a lower rate. On the other hand, the ones who accept such offers do it only when they require a job to earn their living.

Underemployment causes

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The foremost cause of underemployment in the United States is the global crisis, which leads to recession, thereby making firms cut short their human resources. It leads to the loss of jobs and makes job seekers accept whatever opportunities come their way. On the other hand, the employers take advantage of the situation and include employees at lower pay.

Another cause of underemployment is the changes in the job market. The introduction of new technologies makes it hard for people to survive in the competitive professional environment. Although those who upskill themselves keep growing with the growing opportunity, those who do not adapt have to take jobs that do not let them utilize their fullest skills and experience.

Last but not least is the imbalanced supply and demand. When the supply of professionals with a required skill exceeds the demand, it makes the market competitive. As a result, the ones who do not get the desired job have to accept the employment opportunities which they are overqualified for.

Effects

The consequences of underemployment, however, are prominent in society with the increasing poverty levels. When people spend on acquiring qualifications and skills but do not earn as expected, it only deteriorates their standard of living. In addition, if they are ina job that pays them less, it doesn’t satisfy them professionally. 

Underemployment Effects

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When overqualified for a job, they know their primary skills do not match the job requirement. This leads to their lack of job satisfaction and thereby hampers their mental health.

Underemployment vs Unemployment

Underemployment and unemployment sound similar, but they are two completely different terms. While unemployment counts the number of people in the country who are 100% jobless, the underemployment rate covers the population that has a job but doesn’t fully utilize their skills, experience, time, and availability. 

Though the former seems to have a more adverse impact on the economy, the latter hampers the economic condition the most. With underemployment, the best brains and the best skills remain underutilized.

Frequently Asked Questions (FAQs)

What is underemployment’s opposite?

Being over-employed is the reverse of being underemployed, a colloquial word for someone who works more hours than they can handle in their full-time job.

How to solve the underemployment issue?

The only way to solve this issue is to refrain from voluntary underemployment. This means neither the employers nor the job seekers should wilfully choose this option. So, for example, if employers find a profile for a particular job and notice that the candidate is overqualified, they should not shortlist them. However, if they do, it should be for a position matching their skills.
On the contrary, it is also the responsibility of the employment seekers to not apply for jobs that do not match their skills or underpay them. Opting for suitable profiles and opportunities helps maintain the employment ecosystem.

Why should one be worried about underemployment?

One should be worried about underemployment because it never provides job satisfaction to employees and let them be exploited until they realize their worth and look for something suitable. Moreover, as they are overqualified and underpaid, such a situation hampers their peace of mind, thereby affecting their mental health. And when an economy’s best brains and highly skilled individuals suffer, the nation’s growth becomes doubtful. 

Recommended Articles

This is a guide to Underemployment’s meaning. Here we explain Underemployment’s causes, effects, and examples & compare it with unemployment. You can learn more from the following articles –

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  1. Maganda Hakimu says

    Wow

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