Underemployed Workers

Underemployment and Unemployment

Underemployment and unemployment are inextricably tied together. In fact, the underemployment framework was developed to more fully describe the overall employment or “jobs” picture, because the unemployment rate only includes workers who are not working but are actively seeking employment. Underemployment is conceptualized to include employment hardship and all types of suboptimal employment, including the following:

• Discouraged workers: Those workers who desire full-time work but have stopped looking because they think no jobs are available
• Underemployed by low hours: Workers who work part-time but desire full-time work. This sector is measured and tracked [Page 898]by the U.S. Bureau of Labor Statistics as part-time for economic reasons
• Underemployed by low income: The “working poor,” or workers who are working full-time but whose income puts them below or barely above the poverty line
• Underemployed by occupational mismatch: Workers whose education level is significantly above the mean education level of the occupation in which they are working or who are working in a field outside the area of their formal training
• Poor quality re-employment following a layoff: Workers who take a significant (more than 20 percent) pay cut or work at a significantly lower hierarchical level after a layoff

All of these dimensions of underemployment reflect a relatively objective lack of fit between a worker and his or her job. From a human capital perspective, employees make choices to invest in building their human capital (e.g., education, skills, experience) based on the expected career opportunities and potential compensation afforded that level of human capital. When a worker is underemployed, he or she is not receiving the expected outcomes based upon his or her human capital investment. Although this imbalance may be advantageous to the employer, it is not ideal for the individual worker. From a broader economic perspective, these types of labor underutilization result in market inefficiency. That is, efficient markets occur when supply and demand are balanced. When labor is underutilized, it not only represents a lack of market efficiency but also a resource that is wasted and cannot be recovered.

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