What Is Underemployment?

Underemployment is a situation in which people have jobs but are not fully employed according to their skills, qualifications, available working hours, or desired level of work. Unlike unemployment, where people do not have a job but are actively looking for one, underemployed workers are employed but may not be getting enough work or may be working in positions that do not make full use of their abilities.

Underemployment is an important economic issue because the unemployment rate alone does not always show the full condition of a labor market. A country can have a relatively low unemployment rate while many workers are still struggling to find sufficient hours, appropriate jobs, or employment that matches their qualifications.

Definition of Underemployment

Underemployment generally refers to the underuse of a person's labor capacity. It can occur when someone works fewer hours than they would like, works in a job below their skill level, or is employed in a position that does not correspond to their qualifications or experience.

For example, imagine a person with a university degree in engineering who can only find work as a part-time cashier. That person is technically employed, but their education and skills are not being fully utilized. Similarly, a person who wants to work 40 hours per week but can only find a 15-hour-per-week job may also be considered underemployed.

The exact definition varies among countries and statistical organizations, but the central idea is the same: underemployment occurs when available labor is not being fully used.

Types of Underemployment

Underemployment can take several forms.

1. Time-related underemployment

Time-related underemployment occurs when a person works fewer hours than they would like and is available to work additional hours.

For example, someone may have a part-time job for 20 hours per week but want and be available for a full-time position. If suitable full-time work is unavailable, that person may be classified as underemployed.

This form of underemployment is particularly common in industries where part-time, temporary, or seasonal work is widespread.

2. Skill-related underemployment

Skill-related underemployment occurs when workers are employed in jobs that do not require the level of education, training, or experience they possess.

A qualified accountant working in a basic administrative role, for instance, may have considerably more skills than their current position requires. Although the worker has a job, their productive potential is not being fully used.

Skill-related underemployment can affect both individuals and the wider economy because resources invested in education and training may not be fully utilized.

3. Involuntary part-time employment

Some workers choose part-time employment because it fits their personal circumstances. Others work part time because they cannot find full-time positions.

The second group may experience underemployment. Their working hours are limited not by preference but by the lack of available opportunities.

Causes of Underemployment

Several factors can contribute to underemployment.

Economic downturns

During recessions or periods of weak economic growth, businesses may reduce working hours rather than immediately dismiss employees. Workers may therefore remain employed but receive fewer hours.

At the same time, people who lose full-time positions may accept part-time or lower-skilled jobs because better opportunities are difficult to find.

Skills mismatch

Labor markets can change quickly. Employers may increasingly demand skills in areas such as technology, data analysis, healthcare, or specialized manufacturing while demand for other skills declines.

Workers whose qualifications do not match available jobs may have difficulty finding positions appropriate to their experience.

Lack of suitable jobs

Underemployment can also result from a shortage of jobs in a particular region or industry. A person may have the right skills but live in an area where suitable positions are limited.

Relocating may not be practical because of housing costs, family responsibilities, transportation difficulties, or other constraints.

Seasonal employment

Some industries naturally experience fluctuations in demand. Tourism, agriculture, construction, and certain retail businesses may offer substantial employment during busy periods but much less work during the off-season.

Workers may therefore experience periods of insufficient working hours even when they remain employed.

Technological change

Automation and technological advances can change the demand for different types of labor. Workers may need to acquire new skills to remain competitive.

During the transition, some workers may accept jobs below their previous skill level while they retrain or search for more suitable employment.

Underemployment vs. Unemployment

Underemployment and unemployment are related but different concepts.

An unemployed person generally has no job, is available for work, and is actively seeking employment. An underemployed person, on the other hand, has a job but is not working to their desired capacity.

Consider two workers. The first has no job and is searching for employment. The second works 15 hours a week but wants to work full time and is available for additional hours. The first is unemployed, while the second may be underemployed.

This distinction is important because traditional unemployment statistics may not fully capture the difficulties faced by underemployed workers.

Effects of Underemployment

Underemployment can have significant consequences for individuals and the economy.

Lower income

People who work fewer hours than they want may earn less than they need or expected. Lower income can make it difficult to pay for housing, food, education, transportation, and other expenses.

Reduced career development

Workers in positions below their skill level may have fewer opportunities to develop relevant professional experience. If this situation continues for a long period, it can make it harder to obtain a job that matches their qualifications.

Loss of skills

Skills can decline when they are not regularly used. A professional who spends years working in a completely different occupation may find that some of their specialized knowledge becomes outdated.

Lower economic productivity

Underemployment represents unused productive capacity. When workers' skills and available time are not fully utilized, the economy may produce less than it could with a better allocation of labor.

Reduced job satisfaction

Working in an unsuitable position or receiving fewer hours than desired can lead to frustration and lower job satisfaction. Workers may feel that their education, experience, and abilities are being wasted.

How Underemployment Is Measured

Measuring underemployment is more complicated than measuring unemployment because it involves factors such as working hours, skills, qualifications, and workers' preferences.

Labor-force surveys often ask people about their employment status, hours worked, desire for additional hours, and availability for more work. Some statistical agencies also collect information about workers whose qualifications exceed the requirements of their jobs.

Because definitions and measurement methods differ, underemployment statistics may not be directly comparable between countries.

How Underemployment Can Be Reduced

Governments, businesses, educational institutions, and workers can all play a role in reducing underemployment.

Education and training can help workers develop skills that are in demand. Vocational education, professional certifications, apprenticeships, and retraining programs can improve job matching.

Better labor-market information can help workers understand which skills employers need and where job opportunities are available.

Economic growth can create additional full-time positions and increase demand for workers.

Flexible work arrangements can also help businesses and employees make better use of available labor, particularly when workers need flexible schedules.

For individuals, networking, continuing education, gaining practical experience, and being willing to consider opportunities in growing industries can improve the chances of finding better-matched employment.

Why Underemployment Matters

Underemployment provides a broader perspective on the health of a labor market. A low unemployment rate may appear positive, but it does not necessarily mean that everyone who wants more work is receiving it or that workers are employed in positions suited to their abilities.

For policymakers, understanding underemployment can help identify weaknesses that unemployment statistics alone may overlook. For workers, recognizing underemployment can help explain why having a job does not always translate into financial security or professional satisfaction.

Conclusion

Underemployment occurs when people are employed but their labor is not being fully utilized. This can mean working fewer hours than desired, working in a position below one's skill level, or being unable to find employment that matches one's qualifications and experience.

It can result from economic downturns, skills mismatches, technological change, seasonal work, or a lack of suitable jobs. Its effects include lower income, reduced career development, skill loss, lower productivity, and decreased job satisfaction.

Understanding underemployment is essential for getting a more complete picture of employment conditions. A healthy labor market is not simply one in which people have jobs; it is one in which workers have sufficient opportunities to use their skills, work the hours they want, earn adequate incomes, and contribute productively to the economy.