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What Is Underemployment?

Underemployment occurs when a worker is employed but not optimally so. This can mean working part-time involuntarily when full-time work is desired, or working in a role that underuses one's education and skills. A software engineer driving for a ride-share company is underemployed. A person working 15 hours per week at a retail job when they need 40 is underemployed. The headline unemployment rate counts only those without jobs who are actively seeking work; it excludes the underemployed, who are technically employed but not fully engaged with the labor market. This gap matters because underemployment affects both individual economic welfare and aggregate economic measures. An underemployed person earns less than they could, which suppresses consumption and tax revenue. It also indicates labor market slack—if underemployment is high, the economy has room to grow without inflation pressure. Conversely, when underemployment is low, most workers are in full-time roles suited to their skills, suggesting the labor market is tight. Understanding underemployment requires looking beyond the unemployment rate to hours worked, wage gaps, and skills matching.

Quick definition: Underemployment refers to workers employed in positions that are insufficient (part-time when full-time is sought) or mismatched to their qualifications, representing a form of labor market slack not captured by headline unemployment.

Key takeaways​

  • Underemployment has two main forms: involuntary part-time work (wanting but not finding full-time work) and skills-based mismatch (overqualification for one's role).
  • The U-6 measure captures both headline unemployment and underemployed workers, providing a broader view of labor underutilization.
  • Involuntary part-time employment spiked during the 2008–2009 recession (to 6.5 million people, or 4% of employed workers) and remained elevated for a decade.
  • Low unemployment can coexist with high underemployment, especially following recessions when workers transition from layoffs to part-time roles to rebuild income.
  • Underemployed workers earn less and have reduced hours, depressing consumption and wage growth; they also experience lower job satisfaction and higher stress.
  • Aggregate hours worked matter as much as job counts for measuring economic output and labor market health.

Types of Underemployment​

Underemployment manifests in several forms, each with distinct causes and implications:

Involuntary part-time employment is the most straightforward form. Workers want full-time employment (typically 35+ hours per week) but can find only part-time work. This might occur because:

  • Employers are uncertain about demand and hire part-time to maintain flexibility.
  • The worker's industry (retail, food service, hospitality) has limited full-time positions.
  • Economic weakness has forced a business to cut full-time positions and keep part-timers for flexibility.

Involuntary part-timers face obvious income shortfalls. Someone earning $15/hour working 20 hours weekly earns $300/week or roughly $15,600 annually (before taxes). The same job at 40 hours would pay $31,200. That gap is often unmanageable without a second job.

Skills-based underemployment occurs when a worker is overqualified for their role. A person with a master's degree working as a cashier, or an engineer in an administrative role, is overqualified. This typically happens due to:

  • Unemployment spells that deplete savings, forcing someone to take any available job quickly.
  • Industry decline (e.g., an auto engineer after manufacturing downsizing).
  • Regional relocation when no job in the field is available locally.
  • Credential mismatch (e.g., a foreign-trained doctor unable to practice due to licensing requirements).
  • Age or discrimination making it hard to secure role-appropriate work.

Skills-based underemployment is harder to quantify because "overqualified" is subjective. The BLS doesn't officially track it, relying instead on research surveys and studies. But the phenomenon is real and affects millions.

Hours underemployment refers to workers in appropriate roles but with insufficient hours. A consultant hired on a part-time basis might have relevant skills but need more hours to reach full-time earnings. Similarly, seasonal workers may work full-time during peak season but few hours off-season.

Wage underemployment occurs when a worker in an appropriate role earns less than their qualifications should command. This might reflect industry or regional wage suppression (e.g., a teacher in a low-wage region) or discrimination. It's harder to measure than involuntary part-time status but is equally real.

Measuring Underemployment: U-6 and Beyond​

The BLS's official unemployment rate (U-3) excludes all underemployed workers, counting only those without jobs who actively seek work. To address this gap, the BLS publishes alternative measures of labor underutilization. The broadest is U-6, which includes:

  • The officially unemployed (U-3),
  • Plus marginally attached workers (those who stopped searching in the past 4 weeks but looked in the past 12 months),
  • Plus involuntary part-time workers (those working part-time but desiring full-time work).

U-6 divides this total by an adjusted labor force that includes marginally attached workers. The result is a measure that captures underutilization more broadly.

Numerically:

  • When U-3 is 3.9%, U-6 might be 7.5%.
  • During the 2008–2009 recession, U-3 peaked at 10%, but U-6 reached 17.1%.
  • This gap illustrates how much the official rate can understate true labor market slack.

Involuntary part-time employment figures are published separately each month by the BLS. The total typically ranges from 3–5 million people during normal times, but surged to 9 million during the 2008–2009 recession.

Some researchers and economists propose even broader measures that account for wage underemployment and skills mismatches, but these are harder to operationalize and are not officially tracked by the BLS.

The Great Recession and Persistent Underemployment​

The 2008–2009 financial crisis created a massive underemployment spike. As firms laid off workers, they often didn't rehire full-time; instead, they hired back part-time or temporary workers to maintain flexibility. Additionally, workers displaced from full-time roles often had to accept part-time positions out of necessity. The result: involuntary part-time employment surged from 3 million (in 2007) to nearly 9 million by 2010.

This wasn't simply a temporary adjustment. Involuntary part-time employment remained elevated for the entire 2010s expansion. Even in 2018, with unemployment near 3.9%, involuntary part-time employment stood at 4.7 million people. Some analysts interpreted this as evidence that labor market slack was larger than the headline rate suggested. The Fed paid attention; officials cited U-6 when debating whether to maintain accommodative policy in the 2010s.

The dynamic reveals an important feature of labor markets: they adjust through margins other than headcount. During downturns, firms first cut hours and offer part-time status rather than laying off; during recoveries, they slowly convert part-time positions to full-time. But this adjustment is gradual. A worker who spent three years in part-time status may not have accumulated enough savings to immediately transition upward, and employer preferences for part-time status may persist if business remains uncertain.

The pandemic offered a different underemployment pattern. In early 2020, layoffs were massive, but so were involuntary part-time arrangements (workers had hours cut). As the economy reopened, firms rapidly rehired full-time to fill vacancies. Involuntary part-time employment fell faster than in the 2008–2009 recovery, reflecting the nature of the shock (temporary) and the urgency of rehiring. By mid-2021, involuntary part-time employment had largely normalized.

Skills Mismatches and Overqualification​

One of the consequences of the Great Recession and prolonged weak recovery was a spike in skills mismatches. As unemployment stayed elevated for years, workers exhausted savings and needed income. Overqualified candidates competed for entry-level positions, filling them and making it harder for appropriately-qualified candidates to find roles. A college graduate might take a retail position after months of job-hunting, not because it's ideal but because they need income. An engineer might take a technician position for the same reason.

Research suggests several consequences of this mismatch:

Wage scarring. Workers who take lower-skilled positions often experience persistent wage penalties. Even when they later transition to appropriate roles, their lifetime earnings are reduced. This is partly mechanical (they earn less during the mismatch period) and partly persistent (employers using past wages as anchors, or workers losing professional networks during displacement).

Productivity loss. An overqualified worker in an underutilized role is less productive than they could be. Society loses the benefit of their human capital. An engineer working retail creates value, but far less than if they were engineering. This depresses aggregate productivity and growth.

Reduced satisfaction and retention. Overqualified workers experience lower job satisfaction, higher stress, and higher turnover. This creates churn costs for employers and psychological costs for workers.

Blocked opportunities for less-educated workers. If highly educated workers fill entry-level positions, less-educated workers face compressed opportunity. This can reduce intergenerational mobility.

The 2008–2009 recession created a visible uptick in overqualification. Studies found that the fraction of college-educated workers in non-college-requiring jobs rose from 32% in 2007 to 36% by 2012. As the labor market recovered, this fraction fell, but not to pre-recession levels, suggesting some hysteresis (path-dependency).

Underemployment and Economic Growth​

Underemployment affects the economy through several channels:

Aggregate hours. While employment counts how many people are employed, aggregate hours capture how much work is being done. Two scenarios:

  1. Unemployment 4%, everyone full-time: 160 million employed × 35 hours = 5.6 billion hours/week.
  2. Unemployment 3%, but 10% of employed are involuntary part-time (20 hours/week vs 35): 165 million employed × (0.9 × 35 + 0.1 × 20) = roughly 5.7 billion hours/week.

The employment numbers differ (4% vs 3% unemployment), but hours are nearly identical. Yet the second scenario suggests more slack exists (those part-timers could expand hours), while the first suggests tightness. For economic output, aggregate hours often matter more than headlines.

Consumer spending. Underemployed workers earn less and spend less. An involuntary part-timer earning $15,600 annually (versus $31,200 full-time) cuts consumption sharply. This depresses demand for goods and services, which ripples through the economy via multiplier effects.

Tax revenue. Lower earnings mean lower tax revenue for government. Underemployment thus affects fiscal position alongside the output effect.

Wage growth. Workers trapped in underemployment have weak bargaining power. They can't demand raises without risking losing the part-time position; they can't easily threaten to quit if overqualified. This suppresses wage growth economy-wide.

Inflation risk. If underemployment is high, the economy can grow without inflation (workers can take more hours without wage pressure). If underemployment is low, growth is constrained by tight labor supply.

Who Becomes Underemployed?​

Underemployment is not random; it concentrates among specific demographic groups:

Younger workers. Teens and early-20s workers often work part-time while in school. Some of this is voluntary (school preferences), but some is involuntary (can't find full-time entry-level work). Youth involuntary part-time employment tends to be higher during economic weakness.

Less educated workers. Those without a college degree are overrepresented among involuntary part-timers. Jobs in retail, food service, and hospitality—industries relying heavily on part-time labor—employ high fractions of high-school-only workers.

Women. Women are overrepresented among part-time workers, though causation is complex. Some part-time work is voluntary (childcare, family preferences), but some is involuntary (employers' assumptions about women's preferences, discrimination). During recessions, involuntary part-time employment spikes more among women than men.

Racial minorities. Black and Hispanic workers face higher involuntary part-time rates, likely reflecting both industry concentration (hospitality, retail) and discrimination in hiring.

Older workers (55+). After job loss, older workers often struggle to find full-time work; many end up in part-time or consulting arrangements.

These groups' overrepresentation in underemployment perpetuates inequality. Involuntary part-time work is concentrated among those who can least afford income shortfalls.

Policy Responses to Underemployment​

Addressing underemployment requires different policies than addressing unemployment:

Aggregate demand stimulus. During weak recoveries, aggregate demand stimulus (fiscal or monetary) can encourage firms to expand hours and convert part-time to full-time positions. The tight labor markets of 2021–2023 demonstrated this: with strong demand and difficulty filling vacancies, firms converted part-time roles to full-time and raised wages.

Wage floors (minimum wage). Higher minimum wages can make part-time work less viable for employers (since part-time avoids some benefit obligations). Some evidence suggests that state minimum wage increases have led to fewer part-time positions and more full-time ones, though the effect is debated.

Healthcare decoupling. In the U.S., many employers offer health benefits only to full-time workers. This creates an incentive to hire part-time to avoid benefits costs. Decoupling healthcare from employment (e.g., universal single-payer) could eliminate this incentive. Some evidence from other countries suggests this increases full-time employment.

Job training and placement. For skills-based underemployment, training and placement services can help workers transition to appropriate roles. However, effectiveness is mixed; training alone doesn't guarantee placement, especially for older workers.

Anti-discrimination enforcement. Addressing age, racial, and gender discrimination in hiring can reduce barriers to full-time employment for underrepresented groups.

Data transparency. Making it easier for workers to identify full-time opportunities and for researchers to track skills mismatches can help market clearing. Some online job platforms now filter by full-time/part-time status explicitly.

Real-world examples​

The retail industry exemplifies involuntary part-time employment. Retailers like Walmart, Target, and Amazon employ millions of workers. Historically, a large fraction of these have been part-time. During the 2020–2024 period, as wage and hour pressures mounted, some major retailers began offering more full-time positions and benefits, partly to reduce turnover. Walmart and Target both increased full-time hiring in 2022–2023 as labor markets tightened and recruitment became harder. This shows how tight labor markets can shift employment from part-time to full-time when firms face constraints.

The hospitality industry saw visible underemployment during the 2008–2009 recession and recovery. Hotels and restaurants laid off workers, then rehired part-time as they slowly recovered capacity. A worker who was a full-time bartender in 2007 might have been laid off in 2009, then rehired part-time in 2012, with full-time status not returning until 2017 or later. The slow, partial recovery reflected both cautious employers and the economics of low-margin hospitality.

The nursing shortage offers a skills-mismatch example. Hospitals have struggled to recruit nurses, leading some nurses to work part-time (by choice) after earlier being forced to full-time during staffing crises. Simultaneously, some trained nurses have left the profession or taken lower-skilled healthcare roles due to burnout. This represents both involuntary and voluntary underemployment, and it reflects broader labor-supply constraints in healthcare.

Common mistakes​

Mistake 1: Ignoring hours worked when evaluating labor markets. Two economists with the same unemployment rate but different hours-worked distributions might draw opposite conclusions about economic slack. A careful analyst looks at both.

Mistake 2: Assuming all part-time work is underemployment. Some people want part-time work (students, parents, semi-retired). This is voluntary and not underemployment. Only involuntary part-time counts.

Mistake 3: Conflating underemployment with unemployment. A person involuntarily part-time is employed, not unemployed. They're in the labor force and have a job; they just want more hours or a better-matched position.

Mistake 4: Treating U-6 as "the real unemployment rate." U-6 is a useful broader measure, but it's not "more real" than U-3; they measure different things. U-3 measures joblessness; U-6 measures underutilization. Both are relevant.

Mistake 5: Assuming underemployment is always involuntary discouragement. Some underemployed workers (especially the overqualified) may view their role as temporary while they job-hunt, meaning they're not discouraged—they're employed while searching. Others accept underemployment as permanent. The dynamics differ.

FAQ​

How many Americans are underemployed?​

As of early 2024, roughly 3.5–4 million people are involuntarily part-time (the most-measured form). If skills-based mismatches are included, estimates rise to 5–10 million, though precise numbers are hard to pin down.

What's the difference between unemployed and underemployed?​

Unemployed means without a job and actively seeking work. Underemployed means employed but in a role that is insufficient (part-time when full-time desired) or mismatched (overqualified). Underemployed people are technically employed, not unemployed.

Does high underemployment mean the economy has slack?​

Generally yes. If many people are involuntary part-time or overqualified, the economy could expand without inflation; those workers could take more hours or better-matched roles without wage pressure. This is why the Fed watches U-6.

When does underemployment typically rise?​

During recessions, as firms lay off and then rehire part-time. Also during weak recoveries, if firms remain cautious about full-time hiring. Underemployment falls during tight expansions when firms need all hands full-time.

Are students working part-time underemployed?​

No. Students working part-time by choice are not underemployed; they're voluntarily in part-time roles. Only those who want full-time work but have part-time jobs are underemployed.

Why do companies hire part-time instead of full-time?​

To maintain flexibility in uncertain times, and (in the U.S.) to avoid providing healthcare benefits. Full-time positions often come with benefits; part-time may not. This creates an incentive to hire part-time when legal.

Summary​

Underemployment occurs when workers are employed but not optimally—either involuntarily part-time when full-time is desired, or overqualified for their roles. While headline unemployment captures joblessness, underemployment captures slack that the unemployed statistic misses. The BLS publishes U-6, a broader measure including both unemployed and underemployed workers, which often double the headline unemployment rate. Underemployment spiked during the 2008–2009 recession and persisted for a decade, revealing that labor market recovery was slower than headline numbers suggested. Today, underemployment remains above pre-crisis levels during periods of weakness and falls during tight expansions. Understanding true labor market conditions requires looking beyond headline unemployment to aggregate hours, underemployment, and wage trends.

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