The official unemployment rate is quite misleading. While it’s considered to be a good indicator of where the economy stands, there’s a lot that it won’t tell you. Looking at the unemployment rate won’t tell you how long people without jobs haven’t been able to find work. And it doesn’t reveal anything about the number of people who are underemployed. Let’s look at the underemployment rate and what it means for the economy.
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What It Means to Be Underemployed
The official unemployment rate shows the number of jobless adults who were actively looking for work within the past four weeks, as a percentage of the total number of workers in the labor force. But it doesn’t distinguish part-time jobs from full-time jobs or reveal anything about the quality of those jobs. In fact, the unemployment rate ignores millions of underemployed Americans whose jobs don’t match their skill level, education or availability to work.
Underemployment is a broad term that generally refers to three types of workers: high-skilled employees with low-skilled jobs, part-time workers who want full-time jobs and skilled workers with low-paying jobs. While these workers technically have jobs, they don’t have the opportunity to contribute as much as they can to society. For example, someone with a law degree is underemployed if he can’t find a job at a law firm and he’s forced to work as a shoe salesman.
What’s the Underemployment Rate?
Measuring underemployment is difficult. In fact, the Bureau of Labor Statistics does not officially quantify it, stating that it hasn’t found a way to accurately measure the number of people who are underemployed and the true economic cost of underemployment. Instead, it looks at other forms of labor underutilization in addition to the official unemployment rate.
According to the BLS, the difference between its U-5 and U-6 measures of unemployment provides the best representation of underemployment, at least among part-time workers who would rather have full-time jobs. The U-5 measure looks at the number of people who are unemployed and marginally attached to the workplace as a percentage of the labor force, plus the number of workers who are marginally attached. The U-6 measure covers everything captured by the U-5 measure, plus the number of people working part time involuntarily.
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Others have come up with their own ways of tracking underemployment. Gallup, for example, looks at the underemployment rate on a regular basis. After looking at the adults who are either unemployed or working part time (when they want full-time gigs), it estimates that the underemployment rate for adults ages 18 and over was 14.1% at the end of January. That’s much higher than the 4.8% unemployment rate that the BLS published in its January jobs report.
A recent survey from PayScale found that 46% of workers or roughly 22 million Americans think they’re underemployed. They’re either working part time or they have jobs that don’t allow them to use their education or skills. And nearly half of the survey respondents believe they deserve bigger paychecks.
What’s more, underemployment seems to be worst among workers with the least education. The Economic Policy Institute looked at BLS data and reported that the underemployment rate for workers without a high school degree was 18.8% in 2016.
Why There Are So Many Underemployed Workers
There are many reasons why workers can’t find the jobs that they want or that they’re qualified to perform. Underemployment becomes an issue when the supply of certain jobs is lower than the demand for those positions. An economic downturn can also lead to underemployment. In a recession, for example, workers who lose their high-skilled, high-paying jobs may have to take up part-time jobs.
Technological advancements can also raise the underemployment rate. New technology and automation may eliminate the need for some workers. After they’re laid off, displaced workers may need to find low-paying jobs until they can acquire new skills or find other ways to make ends meet. Technological change and offshore outsourcing are two reasons why the manufacturing industry has been in decline for decades.
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Underemployed workers who aren’t happy with their jobs are more likely to be detached and unproductive. Those who feel unmotivated may fail to put effort into gaining additional skills that could improve their job prospects. At its worst, underemployment can raise the poverty rate, lower consumer spending and weaken the economy.
Addressing underemployment won’t be easy. But taking steps to encourage workers to build their professional network, go back to school or take professional development courses might help. Employers also have to find ways to ensure that their workers feel engaged and know that their opinions and concerns matter.
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