Underemployment
Encyclopedia
Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full-time work, and overqualification, where the employee has education, experience, or skills beyond the requirements of the job.
Underemployment has been studied in recent decades from a variety of perspectives, including economics
, management
, psychology
, and sociology
. In economics, for example, the term underemployment has three different distinct meanings and applications. All meanings involve a situation in which a person is working, unlike unemployment
, where a person who is searching for work cannot find a job. All meanings involve under-utilization of labor which is missed by most official (governmental agency) definitions and measurements of unemployment
.
Underemployment can refer to:
of workers with high skill
levels in low-wage
jobs that do not require such abilities. For example, someone with a college degree
may be tending bar
or driving a cab. This may result from the existence of unemployment
, which makes workers with bills to pay (and responsibilities) take almost any jobs available, even if they do not use their full talents. This can also occur with individuals who are being discriminated
against, lack appropriate trade certification or academic degree
s (such as a high school
or college
diploma
), have disabilities, or have served time in prison
.
Two common situations which can lead to underemployment are immigrants and new graduates. When highly-trained immigrants arrive in a country, their foreign credentials may not be recognized or accepted in their new country, or they may have to do a lengthy or costly re-credentialing process. As a result, when doctors or engineers from other countries immigrate, they may be unable to work in their profession, and they may have to seek menial work. New graduates may also face underemployment, because even though they have completed the technical training for a given field for which there is a good job market, they lack experience. So a recent graduate with a Master's degree in accounting may have to work in a low-paid job until they are able to find work in their field.
Another example of this is someone who holds high quality skills for which there is low market-place demand
. While it is costly in terms of money and time to acquire academic credentials
, many types of degrees, particularly those in the fine art
s and classics, are valued poorly by market
place. A number of surveys show that skill-based underemployment in North American and Europe can be a long-lasting phenomenon. If university graduates spend too long in situations of underemployment, the skills they gained from their degrees can atrophy from disuse or become out of date.
Given that most university study is subsidized (either because it takes place at a state or public university, or because the student receives government loans or grants), this type of underemployment may also be an ineffective use of public resources. Several solutions have been proposed to reduce skill-based underemployment. For example, government-imposed restrictions on enrollment in public universities in fields with a very low labor market demand. However, the university system would be unlikely to support such a proposal, as it would reduce student enrollment.
A related kind of underemployment refers to "involuntary part-time" workers. These are workers who could (and would like to) be working for the standard work-week (typically full-time employment
means 40 hours per week in the United States
) who can only find part-time work. Underemployment is more prevalent during times of economic stagnation (during recession
s or depressions
). Obviously, during the Great Depression
of the 1930s, many of those who were not unemployed were underemployed. These kinds of underemployment arise because labor markets typically do not "clear
" using wage adjustment
. Instead, there is non-wage rationing
of jobs.
to describe localities where economic activity rates are unusually low. This can be induced by a lack of job opportunities, training
opportunities, or services such as childcare
and public transport
ation. Such difficulties may lead residents to accept economic inactivity rather than register as unemployed
or actively seek jobs because their prospects for regular employment appear so bleak. (These people are often called discouraged worker
s and are not counted officially as being "unemployed.") The tendency to get by without work (to exit the labor force
, living off relatives, friends, personal savings, or non-recorded economic activities) can be aggravated if it is made difficult to obtain unemployment benefits.
Relatedly, in macroeconomics
, "underemployment" simply refers to excess unemployment, i.e., high unemployment relative to full employment
or the
natural rate of unemployment
, also called the NAIRU
. Thus, in Keynesian economics
, reference is made to underemployment equilibrium
. Economists calculate the cyclically-adjusted full employment
unemployment rate, e.g. 4% or 6% unemployment
, which in a given context is regarded as "normal" and acceptable. Sometimes, this rate is equated with the NAIRU
. The difference between the observed unemployment rate and cyclically adjusted full employment unemployment rate is one measure of the societal level of underemployment. By Okun's Law
, it is correlated with the gap between potential output
and the actual real GDP
. This "GDP gap" and the degree of underemployment of labor would be larger if they incorporated the roles of underemployed labor, involuntary part-time labor, and discouraged workers.
s, the term refers to "overstaffing" or "hidden unemployment," the practice of business
es or entire economies
employing workers who are not fully occupied i.e. who are currently not being used to produce goods or services (in other words, employees who are not economically productive
, or underproductive, or economically inefficient). This may be because of legal or social restrictions on firing and lay-offs (e.g. union rules requiring managers to make a case to fire a worker or spend time and money fighting the union) or because they are overhead workers, or because the work is highly seasonal (which is the case in accounting firms focusing on tax
preparation, as well as agriculture
).
This kind of underemployment does not refer to the kind of non-work time done by, for instance, firefighters or lifeguards, who spend a lot of their time waiting and watching for emergency or rescue work to do; this kind of activity is necessary to ensure that if (e.g.) three fires occur at once, there are sufficient firefighters available.
Critics of governments from the public choice school argue that government public services tend to add more staff than they need, because they claim that government managers
have an incentive to "build empires"; that is, to increase their apparent importance by creating a larger body of staff (i.e., an "empire") for them to manage. They argue that managers hire a team of technical advisors and then create subordinate groups underneath them to enhance their stature; however, these staffers may have little actual work to do.
This kind of underemployment may exist for structural or cyclical
reasons. In many economies, some firms become insulated from fierce competitive pressures and grow inefficient
, because they are awarded a government monopoly (e.g., telephone or electrical utilities) or due to a situation of abuse of market power (e.g., monopoly
). As such, if they may employ more workers than necessary, they might not be getting the market signals that would pressure them to reduce their labour force, and they may end up carrying the resultant excess cost
s and depressed profits
. In some countries, labour laws or practices (e.g. powerful unions) may force employers to retain excess employees. Other countries (e.g. Japan
) often have significant cultural influences (the relatively great importance attached to worker solidarity as opposed to shareholder
rights) that result in a reluctance to shed labour in times of difficulty. In Japan, there is a long-held tradition that if a worker commits to serve a company with long and loyal service, the company will, in return, keep the worker on the payroll even during economic downturns.
In centrally-planned economies, lay-offs were often not allowed, so that some state-run companies would have periods when they had more workers than they needed to complete their tasks.
Cyclical underemployment refers to the tendency for the capacity utilisation rate of firms (and therefore of their demand for labor) to be lower at times of recession
and/or depression. At such times, underemployment of workers may be tolerated — and indeed may be wise business policy — given the financial cost and the degradation of morale
from shedding and then re-hiring staff. Alternatively, paying underused overhead workers is seen as an investment in their future contributions to production. This kind of underemployment has been given as a possible reason why Airbus
gained market share
from Boeing
. Unlike Airbus, which had more flexibility, Boeing was unable to ramp up production
fast enough when prosperous times returned because the company had dismissed a great part of its personnel in lean times.
Another example is the tourism
sector, which is faces cyclical demand in areas where attractions are weather-related. In some tourism sectors, such as the sun and sand tours operated by Club Med
, the company can shed bartenders, lifeguards, and sports instructors, and other staff in the off-season, because there is such a strong demand amongst young people to work for the company, because its glamorous beachfront properties are desirable places to work. However, not all tourism sectors find it so easy to recruit staff. Some tourism sectors require workers with unusual or hard-to-find skills. Northern Ontario hunting and fishing camps that require skilled guides may have an incentive to retain their staff in the off-season. Another example is companies which run tours for foreign tourists using staff speaking the travellers' native tongue. In Canada, guided tours are available for Japanese and German tourists in their native languages; in some locations, it may be hard for companies to find Japanese- or German-speaking staff, so the companies may retain their staff in the off-season.
Underemployment has been studied in recent decades from a variety of perspectives, including economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
, psychology
Psychology
Psychology is the study of the mind and behavior. Its immediate goal is to understand individuals and groups by both establishing general principles and researching specific cases. For many, the ultimate goal of psychology is to benefit society...
, and sociology
Sociology
Sociology is the study of society. It is a social science—a term with which it is sometimes synonymous—which uses various methods of empirical investigation and critical analysis to develop a body of knowledge about human social activity...
. In economics, for example, the term underemployment has three different distinct meanings and applications. All meanings involve a situation in which a person is working, unlike unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
, where a person who is searching for work cannot find a job. All meanings involve under-utilization of labor which is missed by most official (governmental agency) definitions and measurements of unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
.
Underemployment can refer to:
- "Overqualification" or "overeducation", or the employmentEmploymentEmployment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
of workers with high education, skillSkillA skill is the learned capacity to carry out pre-determined results often with the minimum outlay of time, energy, or both. Skills can often be divided into domain-general and domain-specific skills...
levels, and/or experience in jobs that do not require such abilities. For example, a trained medical doctor who works as a taxiTaxicabA taxicab, also taxi or cab, is a type of vehicle for hire with a driver, used by a single passenger or small group of passengers, often for a non-shared ride. A taxicab conveys passengers between locations of their choice...
driver would experience this type of underemployment. - "Involuntary part-time" work, where workers who could (and would like to) be working for a full work-week can only find part-time work. By extension, the term is also used in regional planningRegional planningRegional planning deals with the efficient placement of land use activities, infrastructure, and settlement growth across a larger area of land than an individual city or town. The related field of urban planning deals with the specific issues of city planning...
to describe regions where economic activity rates are unusually low, due to a lack of job opportunities, trainingTrainingThe term training refers to the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It forms the core of apprenticeships and provides the backbone of content at institutes of...
opportunities, or due to a lack of services such as childcareChildcareChild care means caring for and supervising child/children usually from 0–13 years of age. In the United States child care is increasingly referred to as early childhood education due to the understanding of the impact of early experiences of the developing child...
and public transportPublic transportPublic transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
ation. - "Overstaffing" or "hidden unemployment" (also called "labor hoarding"), the practice in which businessBusinessA business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es or entire economiesEconomicsEconomics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
employ workers who are not fully occupied---for example, workers currently not being used to produce goods or services due to legal or social restrictions or because the work is highly seasonal.
Underutilization of skills
In one usage, underemployment describes the employmentEmployment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
of workers with high skill
Skill
A skill is the learned capacity to carry out pre-determined results often with the minimum outlay of time, energy, or both. Skills can often be divided into domain-general and domain-specific skills...
levels in low-wage
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
jobs that do not require such abilities. For example, someone with a college degree
Academic degree
An academic degree is a position and title within a college or university that is usually awarded in recognition of the recipient having either satisfactorily completed a prescribed course of study or having conducted a scholarly endeavour deemed worthy of his or her admission to the degree...
may be tending bar
Bartender
A bartender is a person who serves beverages behind a counter in a bar, pub, tavern, or similar establishment. A bartender, in short, "tends the bar". The term barkeeper may carry a connotation of being the bar's owner...
or driving a cab. This may result from the existence of unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
, which makes workers with bills to pay (and responsibilities) take almost any jobs available, even if they do not use their full talents. This can also occur with individuals who are being discriminated
Discrimination
Discrimination is the prejudicial treatment of an individual based on their membership in a certain group or category. It involves the actual behaviors towards groups such as excluding or restricting members of one group from opportunities that are available to another group. The term began to be...
against, lack appropriate trade certification or academic degree
Academic degree
An academic degree is a position and title within a college or university that is usually awarded in recognition of the recipient having either satisfactorily completed a prescribed course of study or having conducted a scholarly endeavour deemed worthy of his or her admission to the degree...
s (such as a high school
High school
High school is a term used in parts of the English speaking world to describe institutions which provide all or part of secondary education. The term is often incorporated into the name of such institutions....
or college
College
A college is an educational institution or a constituent part of an educational institution. Usage varies in English-speaking nations...
diploma
Diploma
A diploma is a certificate or deed issued by an educational institution, such as a university, that testifies that the recipient has successfully completed a particular course of study or confers an academic degree. In countries such as the United Kingdom and Australia, the word diploma refers to...
), have disabilities, or have served time in prison
Prison
A prison is a place in which people are physically confined and, usually, deprived of a range of personal freedoms. Imprisonment or incarceration is a legal penalty that may be imposed by the state for the commission of a crime...
.
Two common situations which can lead to underemployment are immigrants and new graduates. When highly-trained immigrants arrive in a country, their foreign credentials may not be recognized or accepted in their new country, or they may have to do a lengthy or costly re-credentialing process. As a result, when doctors or engineers from other countries immigrate, they may be unable to work in their profession, and they may have to seek menial work. New graduates may also face underemployment, because even though they have completed the technical training for a given field for which there is a good job market, they lack experience. So a recent graduate with a Master's degree in accounting may have to work in a low-paid job until they are able to find work in their field.
Another example of this is someone who holds high quality skills for which there is low market-place demand
Demand (economics)
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay . The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time....
. While it is costly in terms of money and time to acquire academic credentials
Academic degree
An academic degree is a position and title within a college or university that is usually awarded in recognition of the recipient having either satisfactorily completed a prescribed course of study or having conducted a scholarly endeavour deemed worthy of his or her admission to the degree...
, many types of degrees, particularly those in the fine art
Fine art
Fine art or the fine arts encompass art forms developed primarily for aesthetics and/or concept rather than practical application. Art is often a synonym for fine art, as employed in the term "art gallery"....
s and classics, are valued poorly by market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
place. A number of surveys show that skill-based underemployment in North American and Europe can be a long-lasting phenomenon. If university graduates spend too long in situations of underemployment, the skills they gained from their degrees can atrophy from disuse or become out of date.
Given that most university study is subsidized (either because it takes place at a state or public university, or because the student receives government loans or grants), this type of underemployment may also be an ineffective use of public resources. Several solutions have been proposed to reduce skill-based underemployment. For example, government-imposed restrictions on enrollment in public universities in fields with a very low labor market demand. However, the university system would be unlikely to support such a proposal, as it would reduce student enrollment.
A related kind of underemployment refers to "involuntary part-time" workers. These are workers who could (and would like to) be working for the standard work-week (typically full-time employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
means 40 hours per week in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
) who can only find part-time work. Underemployment is more prevalent during times of economic stagnation (during recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
s or depressions
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....
). Obviously, during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
of the 1930s, many of those who were not unemployed were underemployed. These kinds of underemployment arise because labor markets typically do not "clear
Market clearing
In economics, market clearing refers to either# a simplifying assumption made by the new classical school that markets always go to where the quantity supplied equals the quantity demanded; or# the process of getting there via price adjustment....
" using wage adjustment
Quantity adjustment
In economics, the concept of quantity adjustment refers to one possible result of supply and demand disequilibrium in a market, either due to or in the absence of external constraints on the market...
. Instead, there is non-wage rationing
Rationing
Rationing is the controlled distribution of scarce resources, goods, or services. Rationing controls the size of the ration, one's allotted portion of the resources being distributed on a particular day or at a particular time.- In economics :...
of jobs.
Underuse of economic capacity
Underemployment can also be used in regional planningRegional planning
Regional planning deals with the efficient placement of land use activities, infrastructure, and settlement growth across a larger area of land than an individual city or town. The related field of urban planning deals with the specific issues of city planning...
to describe localities where economic activity rates are unusually low. This can be induced by a lack of job opportunities, training
Training
The term training refers to the acquisition of knowledge, skills, and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It forms the core of apprenticeships and provides the backbone of content at institutes of...
opportunities, or services such as childcare
Childcare
Child care means caring for and supervising child/children usually from 0–13 years of age. In the United States child care is increasingly referred to as early childhood education due to the understanding of the impact of early experiences of the developing child...
and public transport
Public transport
Public transport is a shared passenger transportation service which is available for use by the general public, as distinct from modes such as taxicab, car pooling or hired buses which are not shared by strangers without private arrangement.Public transport modes include buses, trolleybuses, trams...
ation. Such difficulties may lead residents to accept economic inactivity rather than register as unemployed
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
or actively seek jobs because their prospects for regular employment appear so bleak. (These people are often called discouraged worker
Discouraged worker
Not to be confused with Disgruntled worker.In economics, a discouraged worker is a person of legal employment age who is not actively seeking employment or who does not find employment after long-term unemployment...
s and are not counted officially as being "unemployed.") The tendency to get by without work (to exit the labor force
Labor force
In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...
, living off relatives, friends, personal savings, or non-recorded economic activities) can be aggravated if it is made difficult to obtain unemployment benefits.
Relatedly, in macroeconomics
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
, "underemployment" simply refers to excess unemployment, i.e., high unemployment relative to full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
or the
natural rate of unemployment
Natural rate of unemployment
The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...
, also called the NAIRU
NAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...
. Thus, in Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
, reference is made to underemployment equilibrium
Underemployment equilibrium
In Keynesian economics, underemployment equilibrium refers to a situation with a persistent shortfall relative to full employment and potential output so that unemployment is higher than at the NAIRU or the "natural" rate of unemployment. This situation is not seen as solvable via laissez-faire...
. Economists calculate the cyclically-adjusted full employment
Full employment
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....
unemployment rate, e.g. 4% or 6% unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
, which in a given context is regarded as "normal" and acceptable. Sometimes, this rate is equated with the NAIRU
NAIRU
In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...
. The difference between the observed unemployment rate and cyclically adjusted full employment unemployment rate is one measure of the societal level of underemployment. By Okun's Law
Okun's law
In economics, Okun's law is an empirically observed relationship relating unemployment to losses in a country's production first quantified by Arthur M. Okun. The "gap version" states that for every 1% increase in the unemployment rate, a country's GDP will be at an additional roughly 2% lower...
, it is correlated with the gap between potential output
Potential output
In economics, potential output refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints...
and the actual real GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
. This "GDP gap" and the degree of underemployment of labor would be larger if they incorporated the roles of underemployed labor, involuntary part-time labor, and discouraged workers.
Underuse of employed workers
The third definition of "underemployment" describes a polar opposite phenomenon: to some economistEconomist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
s, the term refers to "overstaffing" or "hidden unemployment," the practice of business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es or entire economies
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
employing workers who are not fully occupied i.e. who are currently not being used to produce goods or services (in other words, employees who are not economically productive
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
, or underproductive, or economically inefficient). This may be because of legal or social restrictions on firing and lay-offs (e.g. union rules requiring managers to make a case to fire a worker or spend time and money fighting the union) or because they are overhead workers, or because the work is highly seasonal (which is the case in accounting firms focusing on tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
preparation, as well as agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
).
This kind of underemployment does not refer to the kind of non-work time done by, for instance, firefighters or lifeguards, who spend a lot of their time waiting and watching for emergency or rescue work to do; this kind of activity is necessary to ensure that if (e.g.) three fires occur at once, there are sufficient firefighters available.
Critics of governments from the public choice school argue that government public services tend to add more staff than they need, because they claim that government managers
have an incentive to "build empires"; that is, to increase their apparent importance by creating a larger body of staff (i.e., an "empire") for them to manage. They argue that managers hire a team of technical advisors and then create subordinate groups underneath them to enhance their stature; however, these staffers may have little actual work to do.
This kind of underemployment may exist for structural or cyclical
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
reasons. In many economies, some firms become insulated from fierce competitive pressures and grow inefficient
Inefficiency
The term inefficiency has several meanings depending on the context in which its used:*Algorithmic inefficiency - refers to less than optimum computer programs that might exhibit one of more of the symptoms of:** slow execution...
, because they are awarded a government monopoly (e.g., telephone or electrical utilities) or due to a situation of abuse of market power (e.g., monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
). As such, if they may employ more workers than necessary, they might not be getting the market signals that would pressure them to reduce their labour force, and they may end up carrying the resultant excess cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s and depressed profits
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
. In some countries, labour laws or practices (e.g. powerful unions) may force employers to retain excess employees. Other countries (e.g. Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
) often have significant cultural influences (the relatively great importance attached to worker solidarity as opposed to shareholder
Shareholder
A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
rights) that result in a reluctance to shed labour in times of difficulty. In Japan, there is a long-held tradition that if a worker commits to serve a company with long and loyal service, the company will, in return, keep the worker on the payroll even during economic downturns.
In centrally-planned economies, lay-offs were often not allowed, so that some state-run companies would have periods when they had more workers than they needed to complete their tasks.
Cyclical underemployment refers to the tendency for the capacity utilisation rate of firms (and therefore of their demand for labor) to be lower at times of recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
and/or depression. At such times, underemployment of workers may be tolerated — and indeed may be wise business policy — given the financial cost and the degradation of morale
Morale
Morale, also known as esprit de corps when discussing the morale of a group, is an intangible term used to describe the capacity of people to maintain belief in an institution or a goal, or even in oneself and others...
from shedding and then re-hiring staff. Alternatively, paying underused overhead workers is seen as an investment in their future contributions to production. This kind of underemployment has been given as a possible reason why Airbus
Airbus
Airbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Blagnac, France, surburb of Toulouse, and with significant activity across Europe, the company produces around half of the world's jet airliners....
gained market share
Market share
Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...
from Boeing
Boeing
The Boeing Company is an American multinational aerospace and defense corporation, founded in 1916 by William E. Boeing in Seattle, Washington. Boeing has expanded over the years, merging with McDonnell Douglas in 1997. Boeing Corporate headquarters has been in Chicago, Illinois since 2001...
. Unlike Airbus, which had more flexibility, Boeing was unable to ramp up production
Production, costs, and pricing
The following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...
fast enough when prosperous times returned because the company had dismissed a great part of its personnel in lean times.
Another example is the tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
sector, which is faces cyclical demand in areas where attractions are weather-related. In some tourism sectors, such as the sun and sand tours operated by Club Med
Club Med
Club Méditerranée , commonly known as Club Med, is a French corporation of vacation resorts found in many parts of the world, usually in exotic locations. It is considered the original all-inclusive resort.-Foundation:...
, the company can shed bartenders, lifeguards, and sports instructors, and other staff in the off-season, because there is such a strong demand amongst young people to work for the company, because its glamorous beachfront properties are desirable places to work. However, not all tourism sectors find it so easy to recruit staff. Some tourism sectors require workers with unusual or hard-to-find skills. Northern Ontario hunting and fishing camps that require skilled guides may have an incentive to retain their staff in the off-season. Another example is companies which run tours for foreign tourists using staff speaking the travellers' native tongue. In Canada, guided tours are available for Japanese and German tourists in their native languages; in some locations, it may be hard for companies to find Japanese- or German-speaking staff, so the companies may retain their staff in the off-season.
See also
- UnemploymentUnemploymentUnemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
- Effective unemployment rateEffective unemployment rateThe unemployment rate announced by United States Department of Labor does not include those too discouraged to look for work any longer or those part-time workers that are working fewer hours than they would like...
- EmploymentEmploymentEmployment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
- Job guaranteeJob guaranteeA job guarantee is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment. Its aim is to create full employment and price stability...
- Labor forceLabor forceIn economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...
- Work force
- MacroeconomicsMacroeconomicsMacroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
- MicroeconomicsMicroeconomicsMicroeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
- Supply and demandSupply and demandSupply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
- Wages and SalariesWageA wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
- Occupational Outlook HandbookOccupational Outlook HandbookThe Occupational Outlook Handbook is a publication of the United States Department of Labor's Bureau of Labor Statistics that includes information about the nature of work, working conditions, training and education, earnings, and job outlook for hundreds of different occupations. The Handbook is...
- DiscriminationDiscriminationDiscrimination is the prejudicial treatment of an individual based on their membership in a certain group or category. It involves the actual behaviors towards groups such as excluding or restricting members of one group from opportunities that are available to another group. The term began to be...
- PovertyPovertyPoverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
- Working poorWorking poor- Definition in the United States :There are several popular definitions of "working poor" in the United States. According to the US Department of Labor, the working poor "are persons who spent at least 27 weeks [in the past year] in the labor force , but whose incomes fell below the official...
Further reading
- Dooley, David and JoAnn Prause. The Social Costs of Underemployment: Inadequate Employment as Disguised Unemployment. Cambridge University Press. ISBN 9780521810142 | ISBN 0521810140.
- Maynard, Douglas C. and Daniel C. Feldman (Eds.). Underemployment: Psychological, Economic, and Social Challenges. Springer Business + Science. ISBN 9781441994127 | ISBN 1441994122
External links
- A Study of Underemployment in Kentucky (from the University of Kentucky)
- A Study of Underemployment and Overwork in Australia (from the Australian Parliamentary Library)
- What Can You Do About Underemployment? (career advice article)
- United States Underemployment (U-6) (US Bureau of Labor and Statistics)