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The Differences Between Underemployment and Unemployment

Unemployed man circling posts in the Jobs section of a newspaper
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There is a difference between being unemployed and underemployed. Unemployed means you don't have a job, while underemployment means the job you have is inadequate. Sometimes it is used when talking about people who are working in a lower capacity than one in which they are qualified. However, most often, underemployment is connected to jobs that are lower-paid or for a limited number of hours.

The term is also a measure of labor utilization. When underemployment is high, the workforce isn’t being utilized to its full potential.

High underemployment can affect the economy similarly to high unemployment, rising poverty levels, and depressing spending.

Working to a Lesser Degree

Underemployment is different from unemployment in that the person is in fact, working, just not as much as they’d like or to the full extent of their abilities, skills, or education.

A worker may be considered underemployed if they hold a part-time job instead of a full-time one. It can also occur when a worker is qualified for a more senior position in their field but hold a lower-level job. An example would be someone with a law degree working as a legal clerk or paralegal.

As a worker, underemployment can affect you even if you’re not currently working less than you’d like. When you try to change jobs, you might find yourself competing with underemployed (as well as unemployed) individuals for the same opportunities. That also means that you have less bargaining power when it comes time to negotiate salary.

Underemployment can cause problems when the wages or hours are not enough to support a family or to repay college student loans. Often underemployment is a downward spiral that many young workers have difficulty escaping.

Capable But Without Work

Unemployment is to be without a job. When a capable person cannot find work, they are considered unemployed. An unemployed worker is actively seeking employment but is unable to find a job at any level. There are many factors that may cause unemployment and the worker may have access to temporary support during their time between jobs.

Perhaps the primary cause of unemployment is an economic downturn on the local, national, or global level. As money becomes tighter, companies may cut back on hiring or layoff some of their current staff. The economic hardship may be on the company level as well. If a business is struggling that may declare bankruptcy and close their door, putting employees into the unemployment line.

Unemployment can be involuntary or voluntary. If a worker could work but chooses not to—due to the wages, hours, or other factors—it is considered voluntary unemployment. Involuntary unemployment is when the worker is willing to take the job at the going wage and conditions but can't find an open position.

Interrelationship of Unemployment and Underemployment

Unlike unemployment, where a person is actively seeking a job and cannot find work, underemployment describes a situation where a person is working, regardless of the number of hours or the skill level.

However, unemployment and underemployment are closely related, as the latter often occurs on account of the former. Mounting bills, expenses, and responsibilities require people to take any job they can get, even if it is not in line with their respective skill set or career interest. The Bureau of Labor Statistics considers these folks “involuntary” part-time workers because they would like to work a full-time, salaried position but can only find temporary or part-time work.

Reasons for Under and Unemployment

As mentioned earlier an underemployed person works beneath their abilities and qualifications. There can be several reasons a person may be underemployed.

Mismatch of Skills

Recent graduates or workers who have immigrated and are re-establishing their careers in a new country might suffer from this under-utilization of skills. Also, if an older worker reentered the workforce or wanted to change careers they may find that their skillset no longer matches what is required for a position they feel they are qualified to hold.

Lack of Experience

Recent graduates may find themselves struggling to secure their first job after college. Even entry-level jobs sometimes require more experience than students may have to offer right after graduation. Job seekers who find themselves in this position might have to take part-time work while doing additional internships, taking classes, or networking their way to a new position. The experience gained from internship is one of the greatest benefits that a graduate can gain from these programs.

Credentials Aren't Acceptable

In many cases, highly skilled individuals come to work in a new country but face difficulties finding work because their foreign credentials are not be accepted or considered to be an equivalent fit for the position in question.

Few employers are willing to send foreign documents for evaluation by a third party, so many professional individuals such as doctors, lawyers, or engineers take necessary jobs that would otherwise be seen as inferior positions.

Discrimination Issues

In addition to students, foreign nationals, and trade workers, older workers, those with disabilities, mental illnesses, or former inmates are often discriminated against in the employment sphere. These individuals are forced to take the first job made available to them for fear of not finding another.

Low Demand

Some individuals with acceptable experience and skills are victims of low demand in their local job market. For example, an Oceanographer who is living in Wisconsin might have to take a part-time job until they are able to move to a location that can better accommodate their skill set. When the Pennsylvania steel mills begin to close many workers found they had skills that did not easily translate into other jobs in the area.

Poor Economy

In addition, anyone can find themselves in trouble if the economy takes a turn for the worse. During a recession, many skilled workers who would ordinarily have little trouble landing a good job in their field may wind up unemployed or underemployed.

Market Changes

Underemployment can also be caused by larger market changes. For example, automation has affected workers in industries ranging from retail to manufacturing to transportation and warehousing. While we tend to talk about these changes in the context of increased unemployment, underemployment is also a problem, as employers cut hours and workers lose bargaining power in the market.