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The labor force concept of underemployment can be defined as a comprehensive way to identify and measure the underutilization of labor resources. In this sense, it goes beyond plain unemployment—being jobless while looking for work—to further include different forms of inadequate employment, such as being discouraged or subemployed, or employed involuntarily in part-time and low-income jobs with marginal or unstable labor market attachments.
The globalization of the world economy and the corresponding industrial restructuring of developed countries—away from manufacturing and towards services—have had a considerable impact on the composition and characteristics of the labor market. While labor force participation has increased, it has also resulted in an important rise in employment hardship with the emergence, among a considerable portion of the labor force, of unstable, poorly paid, and often involuntarily part-time jobs. This new situation has led labor-market researchers to point out the need for a new term (beyond unemployment) to better capture all meaningful forms of employment hardship.
Interestingly, the origin of this researchers’ concern can be traced back to the 1930s in the work of British economist Joan Robinson (1903-1983). At that time, she wisely argued that in a society where no regular system of unemployment benefits exists and where poor households are unlikely to be supported by social institutions (i.e., a social welfare system), individuals who are out of work and who cannot find a job fitting their skills will naturally employ their time as usefully as they possibly can.
Thus, except under peculiar conditions, a decline in effective labor demand which reduces the amount of employment offered in the general run of industries will not lead to unemployment in the sense of complete idleness, but this surplus of labor will rather get employment into a number of occupations still open to them … [where] their productivity is less than in the occupations that they have left. (Robinson 1936, p. 226)
Robinson referred to this phenomenon as disguised unemployment. Other researchers later drew attention to the existence of such disguised unemployment in certain economic sectors (e.g., agriculture), particularly in the economies of developing countries (Moore 1953; Lewis 1954) where the presence of an unlimited supply of labor makes its marginal productivity negligible, zero, or even negative.
Sponsored by the International Labor Organization, labor statisticians have gathered on numerous occasions to discuss and develop concrete measures of underemployment. In this ongoing discussion, American sociologist Philip Hauser (1909-1994) made an important contribution by developing what became widely known as the labor utilization framework (LUF) to capture a more accurate picture of employment, acknowledging both the official forms of unemployment, as well as different categories of economically inadequate employment based on hours (involuntarily part-time work) and wages (poverty-level pay) (Hauser 1974). The LUF has evolved through time and now has both a substantial literature and a more elaborated set of subcategories (Clogg 1979; Sullivan 1978) to better capture the employment situation and to adapt more efficiently to datasets other than the U.S. Current Population Survey (CPS, compiled monthly by the U.S. Census Bureau for the Bureau of Labor Statistics), where all the original empirical work came from.
Nevertheless, the operational definitions of states of underemployment typically used by researchers can be summarized as follows, from the most to the least severe:
Subunemployed is a proxy for “discouraged workers” and includes individuals who are not currently working and who did not look for work during the previous four weeks because they felt no jobs were available.
Unemployed follows the official definition and includes those not working but who (1) have looked for work during the previous four weeks, or (2) are currently on layoff.
Underemployed by low hours (or involuntary part-time employment) parallels the official definition of those who are working “part-time for economic reasons” and includes those who are working less than thirty-five hours per week because they cannot find full-time employment.
Underemployed by low income (or working poor) includes those whose labor market earnings during the previous year, adjusted for weeks and hours worked, were less than 125 percent of the official poverty threshold for an individual living alone.
Underemployed by occupational mismatch (or overeducated) includes those whose educational level (measured as years of schooling) is greater than one standard deviation above the mean education for workers with the same occupation.
All other workers are defined as adequately employed, while those who are not working and do not want to be working are defined as not in the labor force.
Of course, no standardized measure of any important concept will be perfect, and underemployment is not without flaws. Some of these deficiencies are related to problems with the operationalization itself (e.g., using poverty thresholds that ignore cost-of-living differences), while others have to do with other related forms of employment hardship, such as job security, which are not included in the definition. Notwithstanding, these criticisms are minor since underemployment provides a useful way to analyze trends over time, as well as inequality between groups in the prevalence of employment hardship.
In all years, these trends are unequivocally countercyclical, a phenomenon reflected in the fact that underemployment rose and then fell over the 1990s owing to the recession early in the decade and subsequent economic expansion. Inequality between groups in the risk of underemployment is often striking and should be an issue of great policy concern. Women, minorities, the young, and those with low educational attainment are all especially vulnerable to underemployment. Moreover, these vulnerabilities are often particularly acute among residents of rural areas and central cities. As a result, economists continue research (both theoretical and empirical) on the topic to further contribute to the understanding of these trends in employment hardship over time and between groups.
Bibliography:
- Clogg, Clifford C. 1979. Measuring Underemployment:Demographic Indicators for the United States. New York:Academic Press.
- Hauser, Philip M. 1974. The Measurement of Labor Utilization.The Malayan Economic Review 19: 1–17.
- Lewis, W. Arthur. 1954. Economic Development with Unlimited Supplies of Labor. Manchester School of Economic and Social Studies 22: 139–191.
- Moore, Wilbert E. 1953. The Exportability of the “Labor Force”Concept. American Sociological Review 18 (1): 68–72.
- Robinson, Joan. 1936. Disguised Unemployment. EconomicJournal 46 (182): 225–237.
- Sullivan, Teresa A. 1978. Marginal Workers, Marginal Jobs: The Underutilization of American Workers. Austin: University of Texas Press.
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