Structural Unemployment vs Underemployment
Structural Unemployment and Underemployment are related concepts in AP Economics that students often mix up. Structural unemployment is long-term unemployment that occurs when workers' skills do not match the jobs available. Underemployment is working below your capacity, either part time when you want full time hours or in a job that uses far less skill than you have. Here is how they compare side by side.
Structural unemployment happens when there is a mismatch between the skills of the unemployed and the requirements of the available jobs. This can be caused by technological changes, shifts in consumer demand, or the relocation of industries. Structural unemployment often requires workers to retrain or relocate to find new jobs.
Underemployment comes in two forms: time related underemployment, working part time for economic reasons while wanting and being available for full time hours, and skill related underemployment, holding a job well below your training, such as an engineer driving a delivery van. Neither shows up in the headline unemployment rate, because anyone who did any paid work during the survey week counts as employed. That is why statistical agencies publish broader measures, and in the United States the U-6 rate adds involuntary part time workers and the marginally attached to the U-3 count, so it always runs higher. Underemployment usually rises before layoffs do at the start of a downturn, since employers cut hours first, and it clears slowly in a recovery. The line against unemployment is simple: the underemployed have jobs.
Structural Unemployment vs Underemployment: Out of Work Against Under-Used
| Structural Unemployment | Underemployment | |
|---|---|---|
| Does the person hold a job | No, and they are actively searching | Yes, but it uses too few hours or too little of their skill |
| Counted in the unemployment rate | Yes | No, they are counted as employed |
| What caused it | Demand moved away from the worker's skill or location and the old job disappeared | The best job the worker could get is smaller than the job they could do |
| Typical length | Long, often ending only after retraining or a move | Can run for years while the person stays continuously employed |
| Output given up | Everything that worker would have produced | The gap between what they produce and what they could produce |
| Income while it lasts | Nothing from work, possibly benefits | Reduced but positive |
| Counted inside the natural rate | Yes, it is one of the two components | No, it never enters the unemployment accounting at all |
One layoff produces both, and only one of the two shows up in the rate
Suppose an illustrative town loses 4,000 machining jobs when a plant closes. A year later, 1,500 of those workers have retrained and hold full-time jobs in another field. Another 900 are still jobless and still applying, because the skills they have no longer match anything nearby: that is structural unemployment. The remaining 1,600 took part-time retail work at half their old hours, which makes them underemployed. The three groups add to 4,000. If the town's labor force is 40,000, the 900 add 900 divided by 40,000, or 2.25 percentage points, to the local unemployment rate. The 1,600 add nothing at all. Count hours instead of people and the picture flips. The 900 jobless workers lose 40 hours a week each, or 36,000 hours in total. The 1,600 underemployed workers lose 20 hours a week each, or 32,000 hours. The invisible group is giving up almost as much work as the visible one, and the unemployment rate reports only the visible half. Whether either group ever clears depends on how easily people can switch occupation or region, which is the subject of /glossary/labor-mobility.
Retraining answers one of them and spending answers only part of the other
The two respond to different tools, which is why treating them as one problem wastes money. Structural unemployment survives a boom. If the vacancies in an economy call for skills the jobless do not have, extra spending raises pay and prices in the sectors that are already hiring without moving the people who are stuck. The tools that work on it are slow ones: retraining, relocation help, recognising credentials earned elsewhere, and apprenticeships that take people from a shrinking trade into a growing one. Underemployment splits in two. The part that is short hours reacts to demand quite well, because employers facing more orders convert part-time roles into full-time ones before they hire anyone new, so a strong economy absorbs a lot of it. The part that is skill mismatch, where a trained engineer manages a coffee shop, behaves much more like the structural case and can persist for years, since leaving a paying job to search full time is costly and a long spell in an unrelated role makes the next employer doubt the training. See /macro/unemployment-inflation for how each type is treated in the aggregate picture.
Frequently asked questions
Is underemployment a type of unemployment?
No, underemployment is not a type of unemployment, because an underemployed person holds a job and is classified as employed. The word describes a job that uses too few of the worker's hours or too little of their training, not the absence of a job.
Can a worker be structurally unemployed and underemployed at the same time?
No, the two statuses cannot overlap at a single moment, since one means holding no job and the other means holding one. Workers do move between them, and a common path runs from a structural layoff into part-time work in an unrelated field, which swaps one status for the other.
Does structural unemployment count toward the natural rate of unemployment?
Yes, structural unemployment is one of the two components of the natural rate, sitting alongside frictional unemployment, so an economy at full employment still contains some of it. Underemployment sits outside that accounting entirely because it never enters the unemployment count in the first place.
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