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Difference between Unemployment and Underemployment

Difference between Unemployment and Underemployment

With the current industrial development in many countries, unemployment and underemployment have become a major problem in the world due to the substitution of human labor by machinery. These terms are easy to confuse meanings and may be even more confusing to people who are not familiar with the terminologies involved in the field of economics. The following is an attempt to distinguish between the two terms as used in the field of economics.


Unemployment is the economic situation where an individual who is jobless, qualified for a job and has been actively looking for employment is unable to find a job. It is one of the major factors usually considered to indicate the economic status of a nation. Unemployment rate is the measure used to express the extent of this condition. High rates of unemployment result to economic and social crisis in any society which is civilized. When economic problems occur, they lead to reduced production of both goods and services, decreased income distribution, tax revenues loss, the GDP rate falls and other adverse effects. On the other hand, social problems mostly affect the individual and take toll on them psychologically and financially. Depression resulting to lack of the ability to fulfill their financial responsibilities on time may result to poor health, early deaths and even suicide.

On the contrary, if there are high employment rates in an economy, most of these problems which are not hinged to other factors are avoided –the standard of living is raised as a result of improvement of the rate of production. The causes of unemployment are dependent on the existent economic conditions and also on the individual’s mindset. Some of them include technology change, recession, global market changes, dissatisfaction of the job by employees, discrimination of employment and bad attitude towards employment opportunities.


Underemployment is an economic situation where a job that an individual is committed to does not utilize all the skills and education the employee possesses. It occurs when a mismatch between the availability of jobs and the availability of education levels and skills happens. There are two types of this condition: visible underemployment and invisible underemployment.

Visible Underemployment

This is a situation where persons who are willing and would like to work more hours are unable to find full-time employment and they end up working for less hours than is characteristic of their field. They are often employed in part-time or seasonal jobs although they would like a full-time employment. This type of underemployment is conveniently measurable.

Invisible Underemployment

This is the kind of situation where employees who are overqualified for their jobs are in positions that do not fully utilize their skills or their education and the individuals are not aware of it. The individuals lack the knowledge that their skills or education could be utilized somewhere else and this makes this kind of underemployment difficult to be measured. An analysis of the job requirements and the employee’s qualifications needs to be carried out in order to at least measure invisible underemployment.

Common Features

Both are adverse

Both unemployment and underemployment are regarded as negative factors of the economy and therefore they affect the economy negatively. They result in reduction of the production of goods and services, low living standards when individuals find it difficult to meet their financial needs and eventually poverty. Underemployment and also unemployment to some extent are known to be causes of brain drain too which is a bad thing for the economy. Generally, the effects of these two situations are almost the same.

Mostly Befalls the Youth

These two situations mostly befall young people who are fresh in the market. Most of them lack employment opportunities despite their qualifications and they end up finding part-time jobs to keep them going because  at the end of the day they will have to eat and meet other financial obligations whether employed or not. They become underemployed because they do not have a choice and are ready to do anything to be employed even if it is in a job that does not match their qualifications.

Difference between Unemployment and Underemployment-1

Common Causative Factors

Some of the factors which contribute to these economic conditions are also common. A good example is the change in technology which is a cause for both unemployment and underemployment. Advancement in the technology of an organization renders the roles of some employees obsolete and therefore they are cut off to be replaced by some automated machines or other technology which reduces the number of required personnel. It also bring about underemployment in that some skills some of the employees had studied are rendered useless when the processes become automated and performed by machines. An example is the ATM machines which have taken over the role of tellers in most financial institutions.

What are the Differences Unemployment and Underemployment ?


In unemployment, the individual does not have a job but is actively searching for one. The unemployed are usually willing to be employed for the current wage rates in the market but have not been employed yet. In measurement of unemployment, people are considered to be unemployed if they lack a job, have been actively in search of a job for the previous four weeks , and are available for a job at the time. Active searching means contacting potential employers, submitting resumes and filling job application forms, placing or responding to job advertisements or any other means deemed as active job searching. Employees who have been laid off for a period of time and are waiting to be recalled are counted as unemployed by the Bureau of Labor Statistics as well regardless of whether they have involved in any job searching activity or not.

The underemployed on the other hand are those who are employed in jobs which are not up to their goals and/or expectations. It is a common problem in most countries which have become industrialized in the world. Individuals experience underemployment because they lack the opportunity to work for as many hours as they would like to, get temporary jobs while they want permanent jobs or because they do not find jobs which math their level of qualification and education.

Main Causes

Unemployment is mainly caused by a rise in cost of production and a drop in aggregate demand. When the cost of production is high, employers are targeting on minimizing expenditure and are therefore unlikely to hire new employees. They may even release some of the employees in order to cut on the production cost. A drop in aggregate demand also contributes to unemployment employers might consider cutting off some employees to avoid overstaffing. Other significant causes of unemployment is the change in technology and recession. Advancement in the technology compels the employers to look for new employees with the skills to operate the technology to substitute the others resulting in unemployment. Recession is also a major factor which causes unemployment because due to globalization, the financial crisis of one nation might affect the other countries. Underemployment is mainly caused by a disparity or mismatch in availability of employment opportunities and the corresponding skills availability.

Parameter Used to Measure

Unemployment is measured using the unemployment rate which is a representation of the number of unemployed individuals as a percentage of the whole labor force. It is the percentage of the part of the labor force which is jobless. It rises and falls depending on the state of the economy. When the economy is poor and there is scarcity of jobs, for example, the unemployment rate is expected to rise.

In contrast, there exists no distinct measure for underemployment due to the fact that invisible underemployment is almost not possible to measure. However, underemployment can be measured indirectly by using the brain drain. Brain drain refers to the emigration of individuals who are highly skilled and intelligent professional people from a country to another where they expect better pay, better working conditions and even lifestyle. Job opportunities are normally scarce in developing economies and this leads to most professionals going to look for employment outside the country. However, brain drain can also be experienced in industries and specific organizations and also possibly from the public to the private sector or vice versa of which the latter is less common.

Table 1: Summary Difference between Unemployment and Underemployment

Unemployment Underemployment
Individual is has qualifications, the will and is actively looking for employment but unable to find work. Individual is employed but does not work for as long as they would like to or their qualifications are not fully utilized. They are overqualified.
There is only one type. Divided into two parts: visible and invisible.
Main causes are rise in the cost of production, drop in the aggregate demand and change in technology. Caused by a disparity in availability of employment opportunities and the corresponding skills availability
Unemployment rate used to measure. Distinct measure for underemployment does not exist although can be measured indirectly using brain drain


The major difference between an unemployed person and an underemployed person basically as discussed above is the fact that the underemployed individual already has a job although it is not up to their standards or they don’t work for as long as they would wish; the unemployed individual is one who has the qualifications, the will and is actively searching for a job at least for the prior four weeks according to Bureau of Labor Statistics (BLS).

Additionally, an individual who has been laid off for a while and is waiting to be recalled are treated as unemployed when counting the number of unemployed people. Underemployment is further divided into two types which are visible and invisible underemployment. Unemployment is measured using the rate of unemployment but underemployment is usually not measured due to the difficulty of measuring invisible underemployment. However, it can be measured indirectly using brain drain.

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References :

[0]"U.S. Bureau Of Labor Statistics." Bls.gov. N.p., 2017. Web. 8 Sept. 2017.

[1]Anderson, Patricia M., and Bruce D. Meyer. "Unemployment Insurance Tax Burdens And Benefits: Funding Family Leave And Reforming The Payroll Tax." National Tax Journal 59.1 (2006): 77-95. Web.

[2]Arnold, Roger A. Macroeconomics. [S.l.]: South-Western, 2017. Print.

[3]Clark, Andrew E. "Unemployment As A Social Norm: Psychological Evidence From Panel Data." Journal of Labor Economics 21.2 (2003): 323-351. Web. 8 Sept. 2017.

[4]Maynard, Douglas C, and Daniel C Feldman. Underemployment. New York, NY: Springer New York, 2011. Print.



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