Underemployment
What is Underemployment?
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.
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.
Underemployment: a worked example
Suppose a labor force of 1,000 people contains 50 unemployed, so the headline U-3 rate is 50 divided by 1,000, or 5 percent. Another 80 work part time only because they cannot find full time work, and 20 more want a job and looked in the past year but not the past month, so they sit outside the labor force. A U-6 style measure adds all three groups and divides by the labor force plus the marginally attached: 150 divided by 1,020, or about 14.7 percent. The same labor market looks tight at 5 percent and slack at 14.7 percent, which is why job quality has to be measured separately.
The mistake students make with underemployment
Students count underemployed workers as unemployed. The official survey classifies anyone who worked even one hour for pay in the reference week as employed, so an involuntary part timer and an overqualified graduate both count as employed. The headline rate can therefore look healthy while job quality is poor, which is the gap the broader U-6 measure exists to reveal.
Underemployment questions
Are underemployed workers counted as unemployed?
No, underemployed workers count as employed in the official unemployment rate, because they did paid work during the survey week. Working a single hour for pay is enough to be classified as employed. This is why the headline rate can miss a real deterioration in the quality of jobs.
What is the difference between U-3 and U-6?
U-3 is the headline unemployment rate, counting only people without a job who searched in the past four weeks, while U-6 also counts involuntary part time workers and the marginally attached. U-6 is always the larger of the two, and the gap between them widens when the labor market weakens. Comparing the two is a fast check on job quality.
What are the two main types of underemployment?
The two types are time related underemployment, working fewer hours than you want, and skill related underemployment, working in a job far below your qualifications. The first is measured directly in labor force surveys, while the second is harder to measure because it means judging what a job actually requires. Both mean labor is being used below its capacity.
Related terms
Common comparisons
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