Underemployment

Background

Underemployment refers to a situation in the labor market where individuals with higher levels of skills, education, or experience are working in jobs that do not fully utilize their capabilities. It also encompasses circumstances where individuals are involuntarily employed part-time when they would prefer full-time work. This phenomenon negatively impacts both individual earnings and overall economic productivity.

Historical Context

Underemployment has been a concern since the industrial revolution, where the mismatch between worker qualifications and job requirements began to surface more prominently. The Great Depression further highlighted the problem as many overqualified workers took on whatever work they could find, often settling for jobs well below their capability levels simply to survive. In modern economies, underemployment remains a key issue, sometimes exceeding traditional unemployment rates.

Definitions and Concepts

• Underemployment: Employment of individuals in jobs that do not utilize their full skills, qualifications, or availability for more hours.
• Hidden Unemployment: Individuals who are not counted in official unemployment statistics because they have stopped seeking employment, or are working part-time while desiring full-time positions.
• Involuntary Part-Time Employment: When workers are obligated to work part-time because they cannot find full-time work.

Major Analytical Frameworks

Classical Economics

Classical economists largely focus on the natural rate of unemployment and may consider underemployment to reflect market inefficiencies or information asymmetries.

Neoclassical Economics

Neoclassical economics views underemployment as a result of individual agent decisions influenced by wage rates, labor supply, and demand equilibria, often aggravated by market rigidities like wage floors or institutional constraints.

Keynesian Economic

Keynesians argue that underemployment is a manifestation of cyclical fluctuations and insufficient aggregate demand, advocating for governmental spending to boost demand and facilitate full employment.

Marxian Economics

From a Marxian perspective, underemployment is seen as an inherent issue in a capitalist framework, where capitalists seek to maximize profits by exploiting labor and maintaining a reserve army of labor to suppress wages.

Institutional Economics

Institutional economists consider underemployment an outcome of institutional arrangements, labor market regulations, and social norms that affect how labor markets function.

Behavioral Economics

Behavioral economists study how psychological factors and various biases affect employment decisions, possibly leading to underemployment.

Post-Keynesian Economics

Post-Keynesians expand on the Keynesian notion, emphasizing the structural and institutional causes of underemployment beyond cyclical demand deficiencies and encouraging policy reforms to address these structural issues.

Austrian Economics

The Austrian view is generally skeptical of underemployment as a distinct category, asserting that it is often a transient issue that self-corrects through market mechanisms if left unimpeded by regulations.

Development Economics

In developing economies, underemployment is often more severe due to limited job opportunities and a large informal sector, resulting in a stark contrast between individuals’ skills and the available employment options.

Monetarism

Monetarists might approach underemployment by scrutinizing money supply’s influence on the economy, but they often focus more on overall unemployment rates rather than underemployment metrics specifically.

Comparative Analysis

Comparing underemployment across different economic theories offers insights into diverse root causes, such as market inefficiencies, insufficient demand, structural rigidities, or psychological factors, and inform varied policy prescriptions from deregulation and market-based solutions to government intervention and structural reforms.

Case Studies

Analyzing real-world cases such as post-recession job markets in advanced economies or the prevalence of underemployment in rapidly developing nations such as India or Brazil can illustrate the multifaceted nature of this issue and allow for an evaluation of various policy approaches.

Suggested Books for Further Studies

1. “The Divided Economy” by Martin J. Schmidt
2. “Employment, Unemployment and Underemployment in America” by Thomas Weaver
3. “The Human Capital Dispatches” by Alexandra Lundahl

Related Terms with Definitions

• Full Employment: A situation in an economy where all who are willing and able to work can find employment at prevailing wage rates.
• Overqualification: Employment scenario where individuals possess higher education, skills, or experience for the role they occupy.
• Labor Force Participation Rate: Measures the proportion of the population that is actively engaged in the labor market, either working or seeking work.
• Marginally Attached Workers: Individuals who are not actively seeking work but indicate that they want and are available for a job and have looked for work in the past 12 months.