The key concepts around underemployment and unemployment explained

The terms unemployment and underemployment are used a lot by economists, newscasters, and pundits. You may be thinking, aren’t they the same thing? Well, they’re not, but they are related. Neither are good, but they’re both bad in different ways. We’ll tell you what they mean and how they affect the economy and people individually.

This article will briefly cover the following topics:

• Measures of labor underutilization

• What are unemployment and underemployment?

• What causes them?

• What does underemployment mean for an individual?

How does the US evaluate underutilization in the workforce?

There are many different ways to measure labor underutilization. Both the unemployment and underemployment rates are different measurements of labor underutilization in the United States. The Bureau of Labor Statistics (BLS) is a US government organization that gathers all sorts of data about the labor markets in the US. They create the statistics that are officially used to measure unemployment and underemployment, plus a lot more.

In order to keep this article brief and simple, we won’t go into all the gory details about how the BLS gathers and computes these statistics. We’ll just focus on the traditional measurement of unemployment and the statistics they use to measure underemployment.

Unemployment versus underemployment

Unemployment is the number of people that don’t currently have a job, but are actively looking for a job and have done so within the past four weeks. Underemployment is a much broader measure that includes unemployed people plus those who are employed in lower-paying jobs or work part-time but want to work full-time, and people who have given up looking for work.

What is the relationship between unemployment and underemployment?

Since the underemployment rate includes unemployed people, unemployment is a part of underemployment. So, the underemployment rate will always be higher than the unemployment rate.

What is the difference between underemployment and disguised unemployment?

Disguised unemployment, also known as hidden unemployment, is when there are too many people working in an industry or field, which leads to a situation where some people are working very little or not at all. Disguised unemployment is a component of underemployment.

The causes of unemployment and underemployment

There are a number of factors that can cause unemployment to increase. We’ll touch on a few of the biggest and most well-known causes:

• Large economic impacts like recessions, depressions, and slowdowns in the growth of production.

• Major technology advancements that can replace workers or cause workers to become under-skilled.

• Population increases that outpace job growth.

• Outsourcing of jobs to other countries.

The causes of underemployment are closely related to unemployment but have some differences. All the things we noted for unemployment will also cause the underemployment rates to go up. Here are some of the factors that can create underemployment but are somewhat different from the unemployment impacts:

• An abundance of skilled workers in specific industries or geographic areas can create an opportunity for underemployment.

• Demand for certain products or services may decrease, forcing people in those areas to be underemployed while they change careers.

• Social shifts (remote work, work-life balance, green initiatives) can create gaps between the types of jobs available and what people are seeking.

• Outdated curriculums in higher education and training schools can create a lack of qualified graduates.

As we mentioned, anything that drives unemployment will affect the underemployment. This makes sense since the number of unemployed people is included in the measure of overall underemployment.

How can underemployment affect an individual?

Underemployment is never good, whether we’re talking about the overall economy or a single family. Anyone who is underemployed is not earning their maximum potential. There can be a number of different reasons why you could be underemployed. Some of them are lack of education or training, disabilities, serious physical, or mental illnesses. Any of these can greatly impact your ability to earn a good income.

What can you do to overcome underemployment?

If you find yourself in a position where you’re underemployed, there are things you can do to improve your situation. Foremost, don’t get depressed and give up. That never helps. You should take the initiative and make changes. The easiest thing to do is update your resume. Make sure that all your skills and work experiences are well-represented. Sounds simple, but a lot of people neglect to do this.

If your challenge is more substantial, then you may need to up your game and increase your skill levels or go back to school to boost your education. Another option is to change careers. Perhaps you have reached a plateau in your current career or company. Consider moving to another organization or even switching industries. Making a change will shake things up and put you on a new path to improving your income and career situation.

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Key takeaways 

1. Unemployment is part of underemployment. Both are measures of labor underutilization.

2. Underemployment is larger because it includes people who are working in jobs they’re overqualified for, are involuntarily working part-time, or just stopped looking for a job.

3. Anything that affects the unemployment rate will also affect the underemployment rate.

4. If you find yourself caught in an underemployed scenario, there are things you can do to get out of it. Be bold and make changes to reinvigorate your career.