Underemployment: Definition, Causes, and Why It Matters
What is underemployment?
Underemployment occurs when people work in jobs that do not fully use their skills, experience, or availability. That includes:
- Working part-time but wanting full-time work.
- Holding low-skill or low-pay jobs despite higher qualifications.
- Being outside the labor force because of discouragement after unsuccessful job searches (this group is harder to measure).
Underemployment shows how well the labor force is being utilized, beyond what the headline unemployment rate captures.
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Types of underemployment
- Visible underemployment: Fewer hours than desired (e.g., multiple part-time jobs instead of one full-time role).
- Invisible underemployment: Working in jobs that do not match skills or education (e.g., a graduate doing unrelated low-skill work).
- Disengaged workers: Qualified people who stop actively seeking work and are therefore excluded from official unemployment tallies.
Measurement and the limits of the unemployment rate
The official U.S. unemployment rate (U-3) counts only people in the labor force who are actively seeking work. It omits underutilized workers who are marginally attached, working part-time for economic reasons, or discouraged.
The Bureau of Labor Statistics publishes alternative measures U‑1 through U‑6. U‑6 widens the view by including:
* Marginally attached workers,
* Total employed part-time for economic reasons (those who want full-time work but can only find part-time).
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Because the third type of underemployment (disengaged workers) are not in the labor force, they can be difficult to quantify in standard rates.
Common causes
- Economic downturns and layoffs—skilled workers take lower-paid or part-time jobs.
- Structural change and technological shifts—automation or new skill demands leave some workers without relevant jobs.
- Mismatch between available jobs and worker skills or geographic location.
- Insufficient access to retraining, education, or mobility.
Examples
- An engineer working full-time as a delivery driver because no engineering jobs are available.
- A college graduate stuck in part-time retail work but seeking a full-time professional role.
Both examples represent underused human capital that could contribute more to the economy if better matched.
Consequences
For individuals:
* Lower income and benefits
* Reduced career progression and job satisfaction
* Mental health impacts like frustration and anxiety
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For the economy:
* Lower productivity and innovation
* Wasted human capital and reduced aggregate demand
How policymakers and businesses can reduce underemployment
- Promote economic growth (fiscal stimulus, infrastructure spending) to create jobs.
- Support retraining and upskilling programs aligned with employer demand.
- Encourage policies that improve job matching (career services, mobility assistance).
- Support small business formation and entrepreneurship through access to capital and sensible regulation.
- Use targeted tax and incentive programs to encourage hiring in high-skill roles.
Key takeaways
- Underemployment captures workers whose skills, hours, or availability are underused—an important complement to headline unemployment.
- Official unemployment (U‑3) can understate labor underutilization; broader measures such as U‑6 and labor force participation provide more context.
- Addressing underemployment requires policies that combine demand-side job creation with supply-side retraining and better job matching.
Sources
U.S. Bureau of Labor Statistics; Federal Reserve Bank of St. Louis.