The massive cost of underemployment

By Felix Salmon
February 11, 2010
Center for Labor Market Studies quantifies the cost of today's unprecedented levels of underemployment on society as a whole; I can't find the version that was emailed to me online, but a shorter version is here.

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Those of us who have learned to always look at the formerly-obscure U6 underemployment measure on the first Friday of every month have long been shocked at the number of people who want to work full-time but who in fact are working part-time. A new study from Andrew Sum and Ishwar Khatiwada of the Center for Labor Market Studies quantifies the cost of today’s unprecedented levels of underemployment on society as a whole; I can’t find the version that was emailed to me online, but a shorter version is here.

In any case, here’s the bottom-line table from the longer version:

underemployment.tiff

This $148 billion number is a good lower bound for the annual dollar cost of underemployment on society. The true figure will be higher: as the paper notes,

There are other important losses to these underemployed workers, including less training provided by employers to part-time workers, a lower return to future wages from part-time employment today, and lower future earnings.

Barbara Kiviat has noted this too: it’s possible to do serious harm to your lifetime earnings by taking a part-time or temporary job today rather than staying unemployed and looking for a full-time job. But of course many people have no choice.

Barbara also picks up on the other main finding of the report: that the costs of unemployment and underemployment are being borne disproportionately by the poor and the unschooled. And so long as these levels of underemployment continue, inequality in the US is going to continue to deteriorate — with attendant negative effects on overall economic and political health, the echoes of which can be felt for decades after the underemployment problem has gone away.

Creating jobs, then, is the single most urgent task facing the Obama administration — and the president was right to focus on it during his State of the Union address. Whether the government has the ability to do it, however, is another question entirely.

9 comments

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Employability varies across groups, so un- and underemployment will vary as well.

Posted by Mega | Report as abusive

The link the the Center for Labor Market Studies seems to be broken. This should be a working link:

http://www.clms.neu.edu/

Posted by DACoffin | Report as abusive

When the minimum wage went up, I was thinking that, for the second half of 2009 and for at least 2010, you could let business write off $10 an hour for any worker who made less than that, as though that had been the labor expense; that would approximately shield employers from the most direct effect of the hike, make it less unattractive to hire particularly people at the low end of the spectrum, while hopefully not providing too much disincentive to raise wages if necessary to attract better employees.

More generally, I like the idea of waiving the employers’ contribution to payroll taxes until unemployment gets below 9% or something.

Posted by dWj | Report as abusive

Felix,

Again, you demonstrate your lack of understanding when it comes to the US labor market. There will always be part-time workers here, even if there is full-time employment available.

It is due to the employment availability, with retail usually having openings for under-skilled workers and those who do not want to, or cant work full-time. With the recent recession, there will be less hours available at this level. However, there will always be a lot of people who work these positions for various reasons, which may or may not effect future earnings, if the individuals even care. A lot of part-time workers are high school & college students, who may even have 2 part-time jobs. You will have mothers who supplement the family income, and other occasional workers. These situations are often by choice, so complete elimination of underemployment is neither possible nor desired.

Also, where are the statistics on the unemployed/underemployed labor skill sets? This is important because an engineer or investment banker will not work part-time in a retail or similar low wage part-time position, unless they absolutely have to. Most prefer to wait. As previously mentioned, some of these people are current students or recently graduated. Also, despite part-time work having the potential for a negative effect on future earnings, this is highly subjective. Often times part-time work is a precursor or paid internship which gives people the skills and experience to succeed in a specialized full time position later.

Now I don’t disagree that we are witnessing a significant shift to more part-time work. Just keep in mind, that part-time work has always been common in the US, and should not necessarily be discouraged.

The datapoints and trends you should be exploring are those regarding people who are no longer looking for work. Otherwise, it is unrealistic to assume that if you just get everyone fully employed, everything will be ok. This is a theoretical, unrealistic and impractical approach that demonstrates your amateur understanding of real world on the ground economics.

Posted by LucidOne | Report as abusive

The poor and uneducated always have a hard time finding work. This is no secret. The lower you are on the social scale the harder it is to get an education. The less educated a person is the more difficult it is to find employment.

As more people loose their jobs, they have to find part time work to fill in the financial gap. But part time work will only get you so far and in many instances depending on what you were living on before, part time work is just a waste of time.

Meanwhile being out of the job market tends to dull a person’s skill set. The longer you stay out of the game the farther behind you get. Then it becomes almost impossible to find a job in the field you were fired from because you aren’t current or because no one wants to pay you what you were making before you lost your job. Unemployment benefits don’t help you float while you go back to school to get an education that will help you to get back into the work force. So a person is forced to slowly drown in debt while trying to improve their position.

It happens every day. The economic system we have today has been high jacked by corporate entities given rights as people. Even Keynes would not approve of the way his theories have been used. YouTube Hayek on Keynes. He explains what Keynes’ theory was meant to address and that it was not intended to be used as it has been used today.

Our system is broken. Understanding why it’s broken doesn’t fix it. Doing something to address what’s wrong, like getting rid of corporate citizenship for example, is a step in the right direction.

Posted by Benny_Acosta | Report as abusive

Underemployment is a problem for many white collar workers, I know because at some point a member of my family has been underemployed. That one crappy job resulted in 4 or 5 years to get back to the original income from the first job. This is just one data point, but I doubt this is the exception. Furthermore, it takes longer for white collar workers to get rehired. Adding to all this is the fact that employers are now routinely laying off people in a 4 or 5 year cycle. This forces workers to start over every 4 to 5 years and not develop the skills needed to move ahead. As the baby boomers retire, folks at the top are going to have a hard time filling management positions because in their quest to make a buck they didn’t train any one to actually mind the store.

Posted by BB1978 | Report as abusive

Underemployment is not a problem of the lower classes. Both my college-educated sons with technical backgrounds and almost ten years in the job market are currently unemployed, as is one’s equally qualified wife. Part-time jobs are all they can find for income, but this country’s move away from a manufacturing economy by outsourcing making everything to cheaper overseas manufacturers and even outsourcing many service jobs has made it hard to find them.
As someone who has started and run companies myself, I have immense disdain for the managers of today’s companies and the entire financial community.
They are incredibly stupid, thinking that outsourcing, layoffs and treating employees like mediaeval serfs will not affect the overall economy. Just who do they expect to be able to afford their services?
For example, Anthem Blue Cross in CA is asking individuals to pay ~37% more for individual health insurance policies, claiming its because the policy costs are so high that healthy people are canceling policies so their remaining policy holders are less healthy and more likely to need expensive services. These people don’t understand the insurance business at all!
American business in in crisis, but it’s caused by ignorance (a much under-used but highly appropriate word) at the highest levels. Greed, of course, adds to the problems. Has everyone forgotten Henry Ford? He wanted to make sure every employee made a good salary so he could buy the company’s products. READ SOME HISTORY ALL YOU IGNORANT MANAGERS OR YOU WILL REPEAT IT!

Posted by oldtechie | Report as abusive

Seems like underemployment is a scourge for all social levels. From unemployment to underemployment. The time couldn’t be better to start your own business. :-)

Posted by Benny_Acosta | Report as abusive

Have you considered measurement bias in these statistics? The vaunted U6 number has only been around since 1994. It’s not like there’s been many recessions to compare, and people will always overreport their job-search history if they think they might get some government benefit from searching.

Posted by Publius | Report as abusive