11/26/2017 Underemployment: Definition, Causes, Effects, Rate

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What Is Underemployment? It's Causes, Effects and the Current

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Overeducated and Underemployed: Thank You, Recession
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By Kimberly Amadeo
Updated April 20, 2017

Underemployment is when workers' jobs don't use all their skills, education, or availability to work. There are two types of
underemployment: visible and invisible.

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

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Invisible underemployment includesworkersin full-time jobs that don'tuse alltheir skills.This type of underemployment is nearly
impossible to measure. It requires extensive surveying that compares workers' skills vs. job requirements. The workers often don't
even realize their skills could be better used elsewhere. (Source: "Underemployment," Glossary of theOrganization for Economic
Cooperation and Development.)

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. 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 are also underemployed.

Underemploymentalso includes those whoworkfull-time but livebelow the poverty level. That's according toPaul Osterman, co-
director of the MIT Sloan Institute for Work and Employment Research. This category is also known as the "working poor."

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According to Osterman, "The labor market is just not delivering for Americans what it should be delivering." This denition of
underemploymentincludes everyone who makes less than $10.50 an hour.

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(Source: "The Ranks of the Underemployed Continue to Grow," U.S. News and World Report,October 19, 2011.)

Causes
Arecessionand the resultantcyclical unemploymentcausedunderemployment as well. Whenworkers outnumberjobs, they will
take anythingthey can get to pay the bills.

Technological change also causesunderemployment. For example, ATM machines have replaced the need for many bank tellers.
These used to be the entry-level positions for a career in nance and banking. As a result, many college grads who werenance
majors take what they can. They wind up asa home healthaides, waitersor truckdrivers. These positions aren't easily replaced by
computer technolo y(Source: "1 in 2 College Graduates Unemployed or Underemployed," Care2.com,April 22, 2012.)

Effects
The eects of underemployment are similar to those of unemployment. First, both cause higher poverty levels. Without adequate
income, families don't buy as much. That reduces consumer demand, slowing business growth. As a result, the nation's gross
domestic productis 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.

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Theymay not be able toreturn to their former eld without training. Someretrain for dierent elds. Others downscale their
lifestyle and accept long-term underemployment. That creates structural unemployment.

Younger people may nd 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 track. They miss the mentoring needed to get increased responsibility that would update their skills. By the time the
recession ends, they are competing with a new batch ofgraduates for entry-level positions in their elds.

In extreme cases, youth underemployment can lead to civil unrest and violence. In 2012, one fourth of all young people in the
Middle East were unemployed. That was one of the causes of the Arab Spring. (Source: "Youth Unemployment to Remain High,"
FT.com,May 21, 2012.)

Underemployment Rate
The BLS states it does not measure underemployment, as it is too dicult. But 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 breaks out workers who are part-time because they could only nd part-time work.

The BLS reports other, broader denitions of underemployment. Here are the designations.

U 3.Total unemployed, as a percent of the civilian labor force. See currentOcial 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. See currentreal

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