# Underemployment: Definition, Causes, and Example

![A worried restaurant server leans against a post in an empty restaurant worrying about their low income.](https://www.investopedia.com/thmb/RvaEo42tYiEALhPnBdJRTDfNLRs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Underemployment-e021af5b611a4bd0bc9e67280c846c9d.jpg)

*— Vladimir Vladimirov / Getty Images*

Underemployment is a measure of the total number of people in an economy who are unwillingly working in low-skill and low-paying jobs or only part-time because they cannot get full-time jobs that use their skills.

Underemployment as well as unemployment is counted in U.S. government reports in order to provide a truer picture of the health of the job market.  

### Key Takeaways

*   Underemployment is a measure of employment and labor utilization in the economy that looks at how well the labor force is being used in terms of skills, experience, and availability to work.
*   It refers to a situation in which individuals are forced to work in low-paying or low-skill jobs.
*   Underemployment can be caused by a variety of factors, from economic recessions to business cycles.
*   The unemployment rate is calculated based solely on the labor force, which does not include persons who are not seeking a job.

## Understanding Underemployment

Underemployment is calculated by dividing the number of underemployed individuals by the total number of workers in a labor force.

There are two types of underemployment: Visible underemployment is underemployment in which an individual works fewer hours than is necessary for a full-time job in their chosen field. Due to the reduced hours, they may work two or more part-time jobs to make ends meet.

The second type of underemployment is invisible underemployment. It refers to the employment situation in which an individual is unable to find a job in their chosen field. Consequently, they work in a job that is not commensurate with their skill set and, in most cases, pays much below their customary wage.

A third type of underemployment refers to situations in which individuals who are unable to find work in their chosen field quit the workforce altogether, meaning they haven't looked for a job in the last four weeks.

These people are not counted as part of the labor force by the [Bureau of Labor Statistics](https://www.investopedia.com/terms/b/bls.asp) (BLS) and therefore do not factor into the standard unemployment rate. It is statistically difficult to measure the third type of underemployment.

## Causes of Underemployment

Underemployment can be caused due to several factors. The period during and after a recession, when companies downsize and lay off qualified workers, is characterized by underemployment.

Another cause of underemployment is changes in the job market due to shifts in technology. As job descriptions change or jobs are automated, laid-off workers can be retrained or retired from the workforce. Those who do not have the resources or means to retrain themselves are generally susceptible to underemployment.

## Weaknesses of the Unemployment Rate

The [unemployment rate](https://www.investopedia.com/terms/u/unemploymentrate.asp) counts those workers who are part of the labor force and actively seeking work but are currently without it. The unemployment rate receives the majority of the national spotlight, but that can be misleading as the main indicator of the job market's health since it does not account for the full potential of the labor force.

The BLS compiles six different unemployment rates labeled [U-1 through U-6](https://www.investopedia.com/articles/investing/080415/true-unemployment-rate-u6-vs-u3.asp). U-3 is the officially recognized unemployment rate, but U-6 is a better representation of the job market as it accounts for discouraged workers who have left the labor force, workers who are not utilizing their full skill set, and workers who have part-time employment but would rather be employed full time.

For example, the standard U.S. unemployment rate (U-3) was 4.1% in December 2024, but at the same time, the U-6 unemployment rate was 7.5%.

A measure of underemployment is needed to express the opportunity cost of advanced skills not being used or being underutilized. What's more, the standard unemployment rate is calculated based solely on the labor force, which does not include persons who are not seeking a job.

There are many instances in which a person can work but has become too discouraged by an unsuccessful job hunt to continue to actively seek a job. The [labor force participation rate](https://www.investopedia.com/articles/investing/103015/how-labor-force-participation-rate-affects-us-unemployment.asp) is used to measure the percentage of the civilian population over the age of 16 who is working or seeking work.

## Examples of Underemployment

For example, an individual with an engineering degree working as a pizza delivery person as their main source of income is considered to be underemployed.

Also, an individual who is working part-time at an office job but would prefer to instead work full-time is considered underemployed. In both cases, these individuals are underutilized by the economy as they, in theory, can provide a greater benefit to the overall economy.

## What Is the Unemployment Rate?

The standard unemployment rate in the U.S. as reported by the U-3 rate was 4.1% in December 2024. The U-6 unemployment rate, which includes the U-3 rate plus "all persons marginally attached to the labor force, plus total employed part-time for economic reasons" was 7.5%.

## How Do Countries Reduce Unemployment?

Countries reduce unemployment by growing the economy and creating more job opportunities. To [spur the economy](https://www.investopedia.com/ask/answers/032415/what-are-some-ways-economic-growth-can-be-achieved.asp), governments can reduce interest rates and taxes, which stimulates economic growth and leads to more hiring. Countries can also invest in infrastructure projects and support businesses and entrepreneurship with tax breaks and loans.

## What Are the Problems With Underemployment?

Underemployment is when a worker is at a job that doesn't fully utilize their skills, education, or experience. Underemployment involves lower wages, job dissatisfaction, and limited career growth. This can have a profound mental impact as it leads to frustration, anxiety, and a loss of hope. It also [impacts the economy](https://www.investopedia.com/articles/economics/10/unemployment-rate-get-real.asp) since workers aren't contributing their full potential, which leads to lower productivity and innovation.

## The Bottom Line

Unemployment is an important measure of the financial health of a nation but often fails to tell the entire story, depending on how it's measured. In the U.S., the oft-reported unemployment rate does not take into consideration individuals who are working in jobs below their qualifications or part-time workers who want to work full-time.

Underemployment captures the portion of the labor force that is working in low-paying, low-skill, or part-time jobs while having the qualifications for better jobs. It is an overlooked measure of unemployment.

To understand the true employment situation and health of the labor market, looking at the U-6 rate in the U.S. will provide a more accurate picture of the workforce when compared to the standard unemployment rate (the U-3 rate in the U.S.).

> **Article Sources**
>
> 1.  U.S. Bureau of Labor Statistics. "[Labor Force Statistics from the Current Population Survey: Concepts and Definitions](https://www.bls.gov/cps/definitions.htm)."
>     
> 2.  Federal Reserve Bank of St. Louis. "[Not in Labor Force](https://fred.stlouisfed.org/series/LNS15000000)."
>     
> 3.  U.S. Bureau of Labor Statistics. "[Table A-15: Alternative Measures of Labor Underutilization](https://www.bls.gov/news.release/empsit.t15.htm)."