Source: International Labour Organization, Labor Work Survey, 2018
Underemployment exists when individuals are engaged in the workforce but not to their full employment level in terms of wages, work history, use of skills, and formal education, among other factors. A person’s ‘underutilization of skills’ is relative to alternative employment, occurring when one’s work status is inadequate compared to previous work experience or to employment statistics of equally skilled and educated members of the workforce.2
According to the Organization of Economic Cooperation and Development (OECD), there are two forms of underemployment that affect the global labor market: visible and invisible underemployment. Visible underemployment can be measured statistically and is comprised of employees who work fewer hours than is typical in their field.3 Visibly underemployed persons are willing to work more hours in the week and are available to do so because they are unable to find full-time employment in their chosen field. These individuals may work two part-time jobs to make ends meet, or they may be contracted for intermittent or temporary employment.
Visible underemployment is measured as ‘time-related underemployment’ due to insufficient hours of work.4 Data on the United States labor market indicates higher time-related underemployment rates for males, but the gap between male and female employees has narrowed in recent years, as shown in the graph below.5
In 2017 the time-related underemployment rate in U.S. was equal to 0.8% of the employed population. The percentage may not be considered a high share, but given that unemployment has declined to its lowest rate, we would expect time-related underemployment to be lower than it is.
Data from the Bureau of Labor Statistics also indicates that 8.2% of full-time workers were underutilized in 2017, meaning that they worked between 1 and 34 hours a week due to either economic or noneconomic reasons. Underutilized full-time workers increased by 10.4% since 2012, while the total number of full-time workers went up by 9.7%.6 The rate of increase in underutilized and full-time workers is proportionate but suggests an upward trend in the number of underutilized workers. When compared with data from the International Labour Organization, we can observe that the total number of underutilized full-time workers is 10 times higher than those who experience time-related underemployment. Underemployment is not easy to record and statistics around the underutilization of full-time employees may be misrepresented.
The other form of underemployment affecting the global labor market is invisible and thus more difficult to determine.7 Invisible underemployment occurs when individuals are employed full-time but do not use all their skills or formal education in their current roles. This form of underemployment is hard to measure statistically because the underutilization of skills is relative to an individual’s work history, formal education, training and the skill set required for the current role he or she possesses. Invisible underemployment is caused by inadequate employment situations ‘due to other limitations in the labor market which limit capacities and well-being of workers’.8 A person can be simultaneously visibly and invisibly underemployed.
Source: Feldman, D. (1996). The Nature, Antecedents, and Consequences of Underemployment. Journal of Management. 22(3): 385-407.
In his 1996 article ‘The Nature, Antecedents and Consequences of Underemployment’, Daniel Feldman sets out several dimensions of underemployment that can help us determine how it is affecting the global economy. Feldman defines underemployment as an ‘inferior, lesser, or lower quality type of employment’ relative to a person’s education and employment history.9 A person’s employment status rests on the belief that his or her work is involuntary; it assumes that employees want to work full-time, permanent roles and that part-time and temporary work inherently require fewer skills.11 Feldman determines that there are three main causes for underemployment that lead to the dimensions outlined above: underemployment as a result of automation and job loss, the rise of alternative work arrangements and competition for entry-level jobs.
The first cause of underemployment is due to automation.12 As developments in automation increase the efficiency of manufacturing, industrial plants closed due to operating inefficiencies or required fewer employees because of increased globalization.13 Globalization has manifested in increased imports, resulting in massive layoffs amongst factory workers whose labor has been made redundant by automation.14 When individuals affected by industrial automation try to re-enter the workforce, they often find themselves in jobs below their earning potential, mismatched with their skill set and more often entering the workforce on a part-time basis rather than full-time.15 Twelve years after Feldman’s paper on underemployment was published, automation has expanded beyond the manufacturing industry. Emerging technological developments have led to a ‘deep digital transformation’ and ‘irreversible shifts in the structure of jobs’ that impact industries and occupations across sectors, regions, and trades.16 Increasingly, individuals displaced by automation are likely to be underemployed, may seek disability status or may drop out of the workforce altogether.
Underemployment may also be caused by the fact that people involuntarily seek alternative work arrangements in the American labor market. According to the 2017 Bureau of Labor Statistics (BLS) Census news release on alternative employment arrangements, 5.9 million persons hold contingent jobs, and these individuals make up 3.8% of the current workforce. Contingent workers are persons ‘who do not expect their jobs to last or who report that their jobs are temporary’ and account for 1.3% to 3.8% of the U.S. labor market in 2017.17 Previous BLS Census results from 2005 indicate that contingent workforce statistics ranged from 1.8% to 4.1% of full-time employment that year.19 When we take into consideration the effects of the 2008 financial crisis, it is surprising that the percentages have remained at relatively similar levels in the last a decade. Given the comparable percentages of contingent employment in the United States in 2005 and 2017, it appears that, statistically speaking, the 2008 financial crisis did not have a significant impact on alternative forms of employment outside of the traditional office setting. The BLS lists economic reasons such as slack business conditions and seasonal work as well as non-economic reasons including child-care problems and other personal obligations as the main reasons why individuals work less than 35 hours a week. These numbers may be grossly underestimated because the BLS does not account for individuals holding more than one temporary or part-time job, thus overlooking the number of persons involuntarily underemployed in the gig economy.
The third cause of underemployment that Feldman examines is related competition for entry-level jobs among recent high school and college graduates. Despite the notion that a college or university education increases an individual’s future earning potential, many recent graduates enter low-paid and often part-time jobs mismatched to their level of education out of necessity. Corporate restructuring processes have eliminated many mid-level positions in organizations which has increased competition for entry-level jobs among college-level and university-educated workers. Employment trends indicate that many college graduates are forced into contingent work due to increased competition from highly experienced workers who are competing for the same type of jobs.20 These factors lead to an overall increase in both visible and invisible underemployment.
Underemployment is difficult to measure, but it impacts the growth and productivity of the current labor market. People can be underemployed in different ways—whether by the number of hours they work, or by the fact that their wages, skills, education and previous work experience do not match the jobs they hold. These inadequate work situations lead not only to individual dissatisfaction, but to lost productivity and stalls in company growth. On a national level, underemployment can lead to misallocated educational resources and underperforming national economies, among other consequences. To create a workforce of individuals who are fully engaged in their jobs, it is necessary to understand the root causes of underemployment and how it shapes the current labor market. In this first article in our series, we outlined the terminology and historical causes of underemployment. Next, we will consider how the rise of automation in the workplace, the rate involuntary contingent work, and the competition for entry-level jobs is shaping underemployment rates and the economy of the future.
Karol Rybaczuk is an economist and the business research analyst for the Global Knowledge Center. Using his experience in CRE research and economic analysis, he forecasts and analyzes future business trends. Karol has a masters’ degree in quantitative methods in economics, a background in investment banking, and also authors an economic forecast column for a leading newspaper in Poland.
Dr. Melony Bethala is the lead researcher and content manager for the Global Knowledge Center. She is a qualitative researcher and analytical writer who turns disparate information into compelling stories. Melony has a master’s degree in writing and a PhD in English, a project for which she conducted interdisciplinary research on women’s rights in India and Ireland.
Adrianna Kowalczyk is an economist and the market research analyst for the Global Knowledge Center. She conducts market research and data analysis, identifies market trends and develops industry insights. Adrianna explores a wide spectrum of current and new technologies affecting real estate and the future of work and has done extensive research on the application of blockchain technology.