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Underemployment is the underuse of a worker because theirjob does not use their skills, offers them too few hours, or leaves the worker idle.[2] It is contrasted withunemployment, where a person lacks a job at all despite wanting one.
Examples of workers who may be considered underemployed include those who hold a part-time job but wish to work more hours, part-time workers who wish to work full-time,[3] andoverqualified workers who have education, experience, or skills beyond their role's requirements.[4][5]
Underemployment has been studied from a variety of perspectives, includingeconomics,management,psychology, andsociology.
In economics, underemployment has three different distinct meanings and applications.[according to whom?] Policy-makers may under-research these meanings when assessing the economy as they focus on unemployment instead:[3]
Underemployment is a significant cause ofpoverty as pay may be insufficient to meet basic needs.[8][9] It has been associated with OECDwage stagnation.[3] Underemployment is a problem particularly indeveloping countries, where the unemployment rate is often quite low, as most workers are doing subsistence work or occasional part-time jobs. In 2011, the global average of full-time workers per adult population was only 26%, compared to 30–52% in developed countries and 5–20% in most of Africa.[10] In 2018–2019, the global average rose to 77%, while in low and low-middle income countries, it was around 60–70%. A similar rate was on the high income countries, while on the upper-middle income countries – around 80%.[11]
A Gallup investigation of its surveys in 154 countries from 2017 to 2022 revealed that a median of 20% of men and 27% of women in the workforce were underemployed.[12]
In one usage, underemployment describes theemployment of workers with highskill levels andpostsecondary education who are working in relatively low-skilled,low-wage jobs.[13][14] For example, someone with a collegedegree may be abartender, or working as afactory assembly line worker. That may result from the existence ofunemployment, which makes workers with bills to pay (and responsibilities) take almost any jobs available, even if they do not use their full talents. That can also occur with individuals who are beingdiscriminated against, lack appropriatetrade certification oracademic degrees (such as ahigh school orcollegediploma), have disabilities or mental illnesses, or have served time inprison.
Two common situations that can lead to underemployment areimmigrants and new graduates.[15] When highly trained immigrants arrive in a country, their foreign credentials may not be recognized or accepted in their new country, or they may have to do a lengthy or costly re-credentialing process. As a result, when doctors or engineers from other countries immigrate, they may be unable to work in their profession, and they may have to seek menial work. New graduates may also face underemployment because even though they have completed the technical training for a given field for which there is a good job market, they lack experience. Recent graduates with a master's degree inaccounting orbusiness administration may have to work in a low-paid job as abarista or store clerk, which does not require a university degree, until they are able to find work in their professional field.
Another example of underemployment is someone who holds high skills for which there is lowmarket-place demand. While it is costly in terms of money and time to acquireacademic credentials, many types of degrees, particularly those in theliberal arts, produce significantly more graduates than can be properly employed.[16] Employers have responded to the oversupply of graduates by raising the academic requirements of many occupationshigher than is really necessary to perform the work.[17] A number of surveys show that skill-based underemployment in North America and Europe can be a long-lasting phenomenon. If university graduates remain in a prolonged state of underemployment, the skills they gained from their degrees can atrophy from disuse or become out of date. For example, a person who graduates with aPhD inEnglish literature has advanced research and writing skills when they graduate, but if they work as a store clerk for a number of years, these skills may atrophy from disuse. Similarly, technically specialized workers may find themselves unable to acquire positions commensurate with their skills for extended lengths of time followinglayoffs. Skilled machinists who are laid off may find that they cannot find another job as a machinist and so they may work as a server in a restaurant, a job which does not use their professional skills.[18]
As the tertiary education of most students in Western countries is fully or partially subsidized by government monies (because it takes place at astate university orpublic university or because the student receives government loans or grants), the underemployment of recent college graduates may also be an ineffective use of public resources. Several solutions have been proposed to reduce skill-based underemployment: for example, government-imposed restrictions on public university enrollment in degree fields with a very low labor market demand (e.g. fine arts), or changes in degree cost model that reflect potential labour market demand.
A related kind of underemployment refers to "involuntary part-time" workers, who could (and would like to) be working on a standard work-week (typicallyfull-timeemployment means 40 hours per week in theUnited States) schedule but can find only part-time work. Underemployment is more prevalent during times of economic stagnation (duringrecessions ordepressions) and when financial pressures increase.[19] During theGreat Depression of the 1930s, many of those who were employed were underemployed. Those kinds of underemployment arise becauselabor markets typically do not "clear" usingwage adjustment. Instead, there is a non-wagerationing of jobs.
Underemployment can also be used inregional planning to describe localities whereeconomic activity rates are unusually low. This can be induced by a lack of job opportunities,training opportunities, or services such aschildcare andpublic transportation. Such difficulties may leadresidents to accept economic inactivity rather than register asunemployed or actively seek jobs because their prospects for regular employment appear so bleak. (These people are often calleddiscouraged workers and are not counted officially as being "unemployed.") The tendency to get by without work (to exit thelabor force, living off relatives, friends, personal savings, or non-recorded economic activities) can be aggravated if it is made difficult to obtain unemployment benefits.[20]
Relatedly, inmacroeconomics, "underemployment" simply refers toexcess unemployment, i.e., high unemployment relative tofull employment or thenatural rate of unemployment, also called theNAIRU. Thus, inKeynesian economics, reference is made tounderemployment equilibrium. Economists calculate the cyclically-adjustedfull employment unemployment rate, e.g. 4% or 6%unemployment, which in a given context is regarded as "normal" and acceptable. Sometimes, this rate is equated with theNAIRU. The difference between the observed unemployment rate and cyclically adjusted full employment unemployment rate is one measure of the societal level of underemployment. ByOkun's Law, it is correlated with the gap betweenpotential output and the actual realGDP. This "GDP gap" and the degree of underemployment of labor would be larger if they incorporated the roles of underemployed labor, involuntary part-time labor, and discouraged workers.
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The third definition of "underemployment" describes a polar opposite phenomenon: to someeconomists, the term refers to "overstaffing" or "hidden unemployment," the practice ofbusinesses or entireeconomies employing workers who are not fully occupied (in other words, employees who are noteconomically productive, or underproductive, oreconomically inefficient). This may be because of legal or social restrictions on firing and lay-offs (e.g. union rules requiring managers to make a case to fire a worker or spend time and money fighting the union) or because they areoverhead workers, or because the work is highly seasonal (which is the case inaccounting firms focusing ontax preparation, as well asagriculture and thehospitality industry). The presence of this issue inwhite collar office jobs is described in theboreout phenomenon, which posits that the major issue facing office workers is lack of work andboredom.
This kind of underemployment doesnot refer to the kind of non-work time done by, for instance,firefighters orlifeguards, who spend a lot of their time waiting and watching for emergency or rescue work to do; this kind of activity is necessary in case there are multiple simultaneous incidents.
This kind of underemployment may exist forstructural orcyclical reasons. In many economies, some firms become insulated from fierce competitive pressures and growinefficient, because they are awarded a governmentmonopoly (e.g., telephone or electrical utilities) or due to a situation of abuse of market power (e.g., holding amonopoly position in a certain industry). As such, if they may employ more workers than necessary, they might not be getting the market signals that would pressure them to reduce their labour force, and they may end up carrying the resultant excesscosts and depressedprofits.
In some countries, labour laws or practices (e.g. powerfulunions) may force employers to retain excess employees. Other countries (e.g.Japan) often have significant cultural influences (the relatively great importance attached toworker solidarity as opposed toshareholder rights) that result in a reluctance to shed labour in times of difficulty. In Japan, there is a long-held tradition that if a worker commits to serve a company with long and loyal service, the company will, in return, keep the worker on the payroll even during economic downturns. Incentrally-planned economies, layoffs were often not allowed so that some state-run companies would have periods when they had more workers than they needed to complete the organization's tasks.
Structural underemployment is especially relevant in developing and emerging market economies. In these countries, workers may be employed but not used to their full potential because of labour market distortions. These distortions often stem from institutional factors like restrictions on household registration, dualistic labour markets and reliance on informal insurance within rural communities. Such imperfections act as barriers to labour mobility, thus hindering the efficient allocation of workers across industries and firms. As a result, many workers remain trapped in low-productivity jobs instead of moving to sectors where their productivity would be higher. This misallocation reduces overall economic efficiency. Estimates[21][22] suggest that, in major emerging markets, these labour market distortions may lower potential output by 5–15%, reflecting the underutilisation of workers who are already employed.
Cyclical underemployment refers to the tendency for thecapacity utilization of firms (and therefore of their demand for labor) to be lower at times ofrecession oreconomic depression.[citation needed] At such times, underemployment of workers may be tolerated and indeed may be wise business policy, given the financial cost and the reduction ofmorale from shedding and then rehiring staff. Alternatively, paying underused overhead workers is seen as an investment in their future contributions to production. This kind of underemployment has been given as a possible reason whyAirbus gainedmarket share fromBoeing. Unlike Airbus, which had more flexibility, Boeing was unable to ramp upproduction fast enough when prosperous times returned because it had dismissed a great part of its personnel in lean times.
Another example is thetourism sector, which faces cyclical demand in areas where attractions are weather-related. In some tourism sectors, such as the sun and sand tours operated byClub Med, the company can shed bartenders, lifeguards, sports instructors, and other staff in the off-season because there is such a strong demand for young people to work for the company since its glamorous beachfront properties are desirable places to work. However, not all tourism sectors find it so easy to recruit staff. Some tourism sectors require workers with unusual or hard-to-find skills. Northern Ontario hunting and fishing camps that require skilled guides may have an incentive to retain their staff in the off-season. Another example is companies that run tours for foreign tourists using staff speaking the travelers' native tongue. In Canada, guided tours are available for Japanese and German tourists in their native languages; in some locations, it may be hard for companies to find Japanese- or German-speaking staff and so companies may retain their staff in the off-season.
{{cite web}}:|last= has generic name (help)Increasing numbers of recent college graduates are ending up in relatively low-skilled jobs that, historically, have gone to those with lower levels of educational attainment.
New report finds that bachelor's degree recipients whose first job does not require degree are more likely to remain "underemployed" five years later -- and women fare worse than men.
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