What is underemployment?

The total number of people in an economy who are unwittingly employed part-time or in low-paying, low-skill occupations because they cannot find full-time positions that use their talents is known as underemployment. In U.S. government data, underemployment is included with unemployment to provide a more accurate picture of the state of the labor market.

Understanding Job Insecurity

To determine underemployment, divide the total number of workers in a labor force by the number of underemployed people.

Two categories of underemployment exist: When someone works fewer hours than required for a full-time job in their chosen sector, it’s known as visible underemployment. They could work two or more part-time jobs to make ends meet because of the shortened hours.

Invisible underemployment is the second kind of underemployment. It describes the state of employment when a person cannot find work in their profession of choice. As a result, individuals often work jobs that pay much less than their usual compensation and are outside their skill set.

The Bureau of Labor Statistics (BLS) defines “not in the labor force” as someone who has not looked for work in the previous four weeks, which is a third type of underemployment.

When the economic crisis and lockdown struck in early 2020, the number of these laborers increased dramatically, significantly altering working conditions and causing a market meltdown. Measuring the third kind of underemployment is statistically challenging.

Reasons Behind Underemployment

Numerous variables may contribute to underemployment. Underemployment is a feature during and after a recession when businesses reduce staff and terminate competent employees. During the global financial crisis-related recession, underemployment reached an all-time high.

In the U.S. economy, there were 8.2 million underemployed people in the fourth quarter of 2018, compared to 9 million in the same time the previous year, according to BLS data. The organization calculated that 95 million individuals were outside the labor force in Q4 of 2019 (including discouraged workers who had given up seeking employment).

Technology-related changes to the work sector are another factor contributing to underemployment. Retrenched employees may choose to retrain or retire from the workforce when job definitions evolve or become more automated. Underemployment is often a risk for those who need the tools or skills to retrain themselves.

Limitations of the Jobless Rate

The workers actively seeking employment but not yet employed are included in the unemployment rate. The bulk of national attention is focused on the unemployment rate. Still, as it undervalues the potential of the labor force, it may be deceptive as the primary measure of the state of the job market.

As of May 2020, the unemployment rate in the United States was 13.3%, while the underemployment rate was 22.8%. According to the Bureau of Labor Statistics, unemployment is “a percentage of the labor force (the labor force is the sum of the employed and unemployed).” Underemployment must be measured to quantify the potential cost of underutilizing or not using advanced talents.

Furthermore, those not looking for work are not included in the unemployment rate calculation, based only on the labor force. Often, someone capable of working is too discouraged after a failed job search to pursue employment actively. The labor force participation rate determines the proportion of civilians over 16 who are employed or looking for employment.

The BLS compiles six distinct unemployment rates, denoted as U-1 through U-6. U-6 is a better representation of the labor market because it considers workers who prefer to work full-time but are working part-time. It discourages workers who have left the labor force and are not using their complete skill set. U-3 is the officially recognized unemployment rate. One Instance of Underemployment

For instance, someone with an engineering degree whose primary source of income is delivering pizza is said to be underemployed. Additionally, someone is deemed underemployed if they want to work full-time but are now working part-time in an office job. In both situations, the economy undervalues these people, even if they have the potential to contribute more to the economy as a whole.

Conclusion

• Underemployment, a measure of employment and labor use in the economy, examines how well the labor force uses its skills, experience, and availability for work.
• It describes circumstances where people are compelled to labor in low-skilled or low-paying employment.
• There are two kinds of underemployment: obvious underemployment and subtle underemployment.
• Many causes, including business cycles and economic recessions, may lead to underemployment.
• People not looking for work are not included in the labor force, which is the only source used to determine the unemployment rate.