Underemployment describes a situation where an individual is employed but their labor is not being utilized to its full productive capacity. Understanding underemployment is important because it offers a more complete picture of the workforce’s overall health than the traditional unemployment rate alone. This phenomenon signals a deep misalignment between the skills possessed by the labor pool and the opportunities available in the job market, affecting both individual financial security and national productivity.
Defining Underemployment
Underemployment occurs when a worker is employed in a capacity that fails to meet their qualifications, skill set, or desire for working hours. Unlike unemployment, where a person is entirely without a job, the underemployed individual is working but their labor potential is wasted. The core definition centers on the mismatch between the employee’s capabilities and the requirements of their current role. This situation means the economy is not benefitting from the worker’s full potential, leading to lower overall output and efficiency.
The Two Main Types of Underemployment
Underemployment is separated into two distinct categories that reflect different kinds of labor market inefficiency. These classifications help isolate whether the problem is a lack of sufficient hours or a disconnect between a person’s abilities and their job duties. Both types contribute to a broader measure of labor market slack.
Skills and Education Mismatch
This form of underemployment, sometimes called “invisible underemployment,” describes workers who are overqualified for their current position. It involves individuals whose education, experience, or specialized skills far exceed the requirements of their job. For example, an engineer might work as a delivery driver or a college graduate might work in a retail position. This mismatch limits the worker’s ability to earn a commensurate wage and can result in long-term skill atrophy due to lack of professional challenge.
Hours and Availability Mismatch
This type, often referred to as “visible underemployment,” relates to a quantitative shortage of work. It occurs when individuals are working part-time hours but desire and are available for full-time employment. These involuntarily part-time workers have settled for reduced hours due to economic reasons, such as employers cutting shifts or being unable to find a suitable full-time position. Because they are technically employed, they are not counted in the official unemployment rate, despite their labor being underutilized.
Personal and Economic Consequences
Personal Hardship
The effects of underemployment create personal hardship for the individual. The financial strain from low wages and reduced hours often leads to wage stagnation, difficulty building savings, and a diminished ability to pay down debt. Psychological consequences include increased stress, lowered self-esteem, and job dissatisfaction. Working in a role below one’s skill level can also lead to skill depreciation over time, making it harder to secure a suitable job in the future.
Economic Impact
On a broader scale, underemployment translates into lost productivity for the national economy. When skilled workers are not contributing at their full potential, the country’s overall output and innovation capacity are reduced. This inefficiency dampens Gross Domestic Product (GDP) growth because the economy is not effectively leveraging its human capital. Reduced wages and financial insecurity among a large segment of the population also lead to decreased consumer spending, which slows business growth.
Primary Causes of Widespread Underemployment
The rise in underemployment is driven by several systemic factors that have reshaped the modern labor landscape. One cause is the lingering effect of economic downturns, where employers hesitate to hire full-time staff during recovery, relying instead on part-time or temporary labor. Technological advancements also play a role, as automation and artificial intelligence displace workers from routine tasks, forcing them into lower-skilled jobs. Globalization has contributed by shifting manufacturing and certain service jobs overseas, leading to a surplus of workers in domestic markets. The growth of the gig economy has also created a large supply of contract and freelance work, which often lacks the consistent hours and benefits of traditional full-time employment.
Strategies for Overcoming Underemployment
Individuals facing underemployment can proactively engage in specific strategies to move toward a more fulfilling career path.
Targeted Skill Development
One practical approach involves targeted upskilling and reskilling to address specific market needs. Pursuing new credentials signals a commitment to acquiring in-demand competencies. Examples include:
- Pursuing industry-recognized certifications.
- Completing specialized online courses.
- Returning to school for an advanced degree.
Leveraging the Current Role
While in the underemployed role, individuals can seek “stretch assignments” that go beyond the formal job description. This involves negotiating with management to take on projects that utilize higher-level skills, such as data analysis or process improvement. Documenting these experiences provides tangible, resume-boosting achievements. Developing a side hustle or engaging in high-level volunteering can also serve as a temporary outlet to maintain specialized skills.
Strategic Job Search
Adjusting job search tactics is another important step, moving beyond simply applying for job postings to engaging in strategic networking. Informational interviews with professionals in the desired field can provide insights into current skill gaps and organizational needs. Individuals should rebrand their professional identity, ensuring their resume and LinkedIn profile emphasize transferable skills and potential for growth.
Measuring Underemployment and Its Role in Economic Health
The true extent of labor underutilization is measured through broader metrics that account for those missed by the official unemployment rate. Economists use the U-6 rate, which is the most comprehensive measure of labor market slack. The U-6 rate expands on the official unemployment figure by including two key groups of underutilized workers. These include those “marginally attached” to the labor force (who want a job but haven’t searched recently) and individuals employed part-time for economic reasons (involuntarily part-time workers). A persistently high U-6 rate signals that the economy possesses significant untapped labor capacity, suggesting that demand for labor is still weak despite a low official unemployment rate.