Underemployment is a measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience and availability to work. Labor that falls under the underemployment classification includes those workers who are highly skilled but working in low paying jobs, workers who are highly skilled but working in low skill jobs and part-time workers who would prefer to be full time. This is different from unemployment in that the individual is working but is not working at his full capability.
Technological change also causes underemployment. For example, ATM machines have replaced the need for many bank tellers. These used to be the entry-level positions for a career in finance and banking. As a result, many college grads who were finance majors take what they can. They wind up as a home health aides, waiters, or truck drivers. These positions aren’t easily replaced by computer technology (Source: Care2.com, 1 in 2 College Graduates Unemployed or Underemployed, April 22, 2012)
The effects of underemployment are similar to those of unemployment. First, both cause higher poverty levels. Without adequate income, families don’t buy as much. That reduces consumer demand, slowing business growth. As a result, the nation’s Gross Domestic Product (GDP) is lower, as is job growth. It’s a vicious, downward spiral.
If underemployment continues, workers lose the ability to update their skills with on-the-job training.
They may not be able to return to their former field without training. Some retrain for different fields, while other downscale their lifestyle and accept long-term underemployment.
Younger people may find they never get a good start to their career. Forced to take jobs that are beneath their skills, they don’t get on the right career track. They miss the mentoring needed to get increased responsibility that would update their skills. By the time the recession ends, they are competing with a new batch of graduates for entry-level positions in their fields.
In extreme cases, youth underemployment can lead to civil unrest and violence.
For example, one fourth of all young people were unemployed in the Middle East, leading to the Arab Spring. (Source: FT.com, Youth Unemployment to Remain High, May 21, 2012)
Overeducated and Underemployed
Underemployment has a more adverse effect on those with college or post-graduate degrees.