Definition
Underemployment refers to the under-utilization of the skills and abilities of an individual’s workforce, usually characterized by part-time workers seeking full-time employment or highly skilled workers in low skill jobs. It also applies to situations where workers may be employed full-time, but not in their desired field or at their skill level. It’s a type of labor market inefficiency that denotes a suboptimal use of labor resources.
Key Takeaways
- Underemployment refers to workers who are employed but not in their full capacity, which may include skilled workers who are working in unskilled jobs, full-time workers who are only able to find part-time employment, or individuals who are overqualified for their current position.
- Underemployment can have serious economic consequences, such as lowered GDP, decreased purchasing power, and a reduced standard of living. It’s a significant indicator of economic health because it points to inefficiencies in the labor market and potential manpower that is not being fully utilized.
- Policies aimed at reducing underemployment often focus on areas like education and skill-building, aiming to better match worker skills to available jobs, or economic stimulus measures, such as infrastructure projects, that can increase the demand for workers.
Importance
Underemployment is an important finance term because it reflects a more comprehensive picture of the employment sector.
It refers to a situation where individuals are employed but not to their full capacity, either in terms of hours (part-time despite desiring full-time work), or in a job that does not fully use their skills and abilities.
While unemployment rates may appear low, a high underemployment rate indicates economic inefficiency, wage suppression, and unutilized potential as these individuals are not contributing to the economy as effectively as they could.
Hence, underemployment is a crucial measure for policymakers and economists to consider when assessing labor market health and prevailing economic conditions.
Explanation
Underemployment, an economic measure, provides critical insight into the overall health of the economy, reflecting not just those who are unemployed, but also individuals who are inadequately employed in relation to their skills, experience or education. It acts as a lens to view the utilization and distribution of human resources within an economy.
Policymakers extensively use underemployment figures, along with unemployment figures, to identify and address labor market inefficiencies and to devise strategies that promote sustainable economic growth. Monitoring underemployment helps in revealing hidden aspects of an economy’s condition that unemployment rates alone cannot show.
It identifies people who are working part-time but wish to work full-time, or those working in low skill jobs despite having higher qualifications. The degree of underemployment can help economists, researchers and policymakers assess whether the economy is optimally using its labor force or whether there’s a mismatch of skills and job opportunities.
High underemployment could indicate problems such as economic slowdown or improper functioning of labor markets, requiring intervention, while low underemployment is usually a positive sign of a healthy, dynamic economy.
Examples of Underemployment
Recent Graduates Working in Non-related Fields:This is common among recent college graduates who can’t find a job in their field of study. For instance, a person who studied law but is currently working in a retail store due to lack of opportunities. Their skills are under-utilized, resulting in underemployment.
Part-time Jobs:People who are forced to work part-time because they can’t find full-time employment also exemplify underemployment. For example, a trained nurse working only 20 hours per week because they can’t find a full-time position is considered underemployed, as they have the skills and availability for a higher level of employment.
Overqualification:This occurs when a worker’s job qualifications overmatch the job requirements. For example, someone with a master’s degree in business administration who is working as a customer service representative can be considered underemployed, because their education level and skills significantly exceed the requirements of their job.
FAQs About Underemployment
What is Underemployment?
Underemployment refers to the employment of workers in a job that is insufficient in some important way, relative to the workers’ standards of a good job. This might be due to fewer hours than desired, lower wages than expected, or employment in a field that does not make use of a worker’s skills.
What Causes Underemployment?
Causes of underemployment vary and could include economic downturns, employer strategies such as hiring part-time workers to avoid paying benefits, workers’ lack of education or skills, or systemic issues such as discrimination.
How Can Underemployment Impact the Economy?
Underemployment can have several negative impacts on the economy including slow wage growth, reduced levels of consumer spending, lower productivity rates, and higher poverty levels.
How is Underemployment Measured?
Underemployment is typically measured through surveys where respondents report the number of hours they work, their desired number of hours, and/or their skill level compared to their job requirements.
What Are Some Solutions To Underemployment?
Possible solutions to underemployment could include public policy initiatives aimed at increasing skills and education levels, measures to reduce discrimination in the workplace, or efforts to increase the creation of full-time, well-paying jobs.
Related Entrepreneurship Terms
- Labour Force Participation Rate
- Part-Time Employment
- Unemployment Rate
- Income Inequality
- Job Mismatch
