The term underemployment has multiple interrelated meanings. In current usage, it describes the employment of workers with high skill levels in low-wage jobs that do not require such abilities. Such workers are often responding to a tight job market where companies that ordinarily seek out skilled labor are laying off employees or otherwise cutting back on expenses. This can also occur with individuals who are being discriminated against, lack appropriate certification (such as a high school or college diploma), or have served time in jail.
When used by economists, the term refers to the practice of businesses or economies employing workers who are not fully occupied i.e who are to some degree surplus to needs.
The term can also be applied by regional planners 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 transportion. Such difficulties may lead residents to accept economic inactivity rather than register as unemployed because their prospects for regular employment appear so bleak. The tendency to get by without work (to exit the labour force) can be aggravated if it is made difficult to obtain unemployment benefits.
Underemployed workers may exist for structural or cyclical reasons:
- For example, in Western economies, some firms become insulated from fierce competitive pressures and grow inefficient; they may employ more workers than necessary, and carry the resultant excess costs and depressed profits. In some countries, labour laws or practices (e.g. powerful unionss) may force employers to retain excess labour. 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.
- Cyclical underemployment refers to the tendency for the capacity utilisation rate of firms (and therefore of their labour forces) 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 degredation of morale from shedding and then re-hiring staff. This has been given as a possible reason why Airbus gained market share from Boeing. Boeing was unable to ramp up production fast enough when 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 notoriously cyclical in areas where attractions are weather-related.
