Underemployment occurs when an individual's job is unsatisfactory in terms of certain standards or other places to work, considering his qualifications (training and work experience). Highly qualified specialists who don’t use their professional skills and people who work fewer hours but would like to return to full-time employment are defined as underemployed workers. The key difference between unemployment and underemployment is that unemployment refers to an economic situation in which a person, who is actively looking for a job, fails to do it, while underemployment is a situation in which there is a mismatch between employment opportunities and qualifications.
This indicator is calculated by dividing the number of underemployed workers by the number of people in the workforce.
Several types of underemployment exist:
- Visible underemployment comprises people who worked reduced hours in the reporting period, considered for a second job and were ready to start working to earn enough money to live on.
- Invisible underemployment describes a frustrating situation for many employees as their skills are underutilized and the economy doesn’t provide them with the job opportunities they want. They are underpaid and, as a result, a number of highly qualified and qualified employees move to another country in search of better job opportunities.
- Another type of unemployment describes the situation, in which the working age population leave the workforce, meaning that they have not looked for a job and have not taken concrete steps to start their own business for the last four weeks. In 2020, the labor market tension and the number of these workers increased during the pandemic and economic crisis.
For instance, a person with a medical degree whose job now is a taxi driver can be defined as underemployed. In addition to this, an individual who has a part-time job but would rather give preference to full-time form of employment can also be considered underemployed.
Reasons for Underemployment
Several reasons for a person to be underemployed can be mentioned. Underemployment occurs in the period of declining economic performance, when businesses reduce the number of employees and discharge qualified employees. This was particularly noticeable during the global pandemic crisis.
The fact that the job market is changing due to technology shifts can also have a great impact on high underemployment. As many occupations and tasks are carried out by machines or computers, displaced workers can either be upskilled or they can leave the workforce. There’s a high probability that those who are not ready to learn new skills will be underemployed.
Problems with unemployment rate
The unemployment rate considers people of the age established for measuring the economic activity of the population who have taken actions in the job search over a particular period of time and who are currently ready to start working if any job opportunity arises. This indicator attracts a lot of attention. However, it cannot be used to accurately compare unemployment levels as it ignores the full potential of the labor force.
In May 2020, the unemployment rate in the U.S. remained at 13.3%, while the national unemployment rate was at 22.8%.
According to the Bureau of Labor Statistics, or BLS, the unemployment rate represents the number of unemployed as a percentage of the labor force.
To calculate this indicator, we need to take into account the labor force, which doesn’t consider people who are not job seekers. We can see the number of cases in which an individual is able to work but has given up on the job search. Here we can’t but mention the labor force participation rate that reflects the proportion of the working age population that actively participates in the labor market, working or looking for a job.
According to the BLS, six different categories of unemployment can be named - from U-1 to U-6. U3 is considered to be the official unemployment rate.