Difference Between Unemployment and Underemployment

Key Difference – Unemployment vs Underemployment
 

The key difference between unemployment and underemployment is that unemployment refers to the economic situation in which an individual who is actively searching for employment is unable to find work whereas underemployment is a situation where there is a mismatch between the employment opportunities and the skills and education level of the employees. Both unemployment and underemployment result in adverse economic conditions of a country and should be managed effectively in order to reduce and control its negative effects. Thus, the government has a major role to play in policy formation in order to retain skilled employees.

CONTENTS
1. Overview and Key Difference
2. What is Unemployment
3. What is Underemployment
4. Side by Side Comparison – Unemployment vs Underemployment
5. Summary

What is Unemployment?

Unemployment refers to the economic situation in which an individual who is actively searching for employment is unable to find work. Unemployment is often used as a key indicator of economic conditions. In 2015, Forbes magazine reported that South Africa, Greece, and Spain top the list of highest unemployment rates. The unemployment rate is a measure of the frequency of unemployment and is calculated as below in percentage terms.

Unemployment Rate = Number of Unemployed Individuals/ Individuals Currently in the Labor Force *100

Inflation is the main contributor for unemployment. Since inflation increases the cost of production due to the increase in general price levels, corporations have to lay off employees in order to reduce labor costs and stay in business. Further, the aggregate demand for goods and services will decrease due to the rise in prices, which sometimes may even cause certain businesses to be terminated in extreme situations of the economic downturn. The negative effects of unemployment can be seen drastically in a time of recession where the level of economic activity is low. The recession started in 2007 provides an example for the same.

E.g., According to US Bureau of labor statistics, in December 2007, the unemployment rate reported was 5% and it rose to 10% in October 2009.

Keynesian economics theory developed by the British economist John Maynard Keynes emphasizes that unemployment is cyclical in nature and emphasizes that government interventions in the economy is essential to reduce and control unemployment during recessions.

What is Underemployment?

Underemployment occurs when there is a mismatch between the availability of job opportunities and the availability of skills and education levels. There are two types of underemployment namely visible underemployment and invisible underemployment.

Visible Underemployment

Visible underemployment includes employees who are working fewer hours than is typical in their respective field. They are often employed in part-time jobs or seasonal jobs since they are unable to obtain full-time employment even though they are willing and able to work more hours. Visual underemployment can be measured conveniently.

Invisible Underemployment

Invisible underemployment includes employees in full-time jobs that don’t use all their skills. This type of underemployment cannot be measured successfully since some employees themselves may not be aware that their skills could be better used elsewhere. To measure invisible underemployment, an extensive exercise should be carried out that compares the employees’ skills and job roles.

Underemployment is a disappointing situation for many employees since their skills are being underused and the economy lacks the employment opportunities they want. As a result, a number of highly trained and qualified employees leave the country and migrate to other countries in search of better employment opportunities. This is known as ‘brain drain’ and when this occurs in significant scale, it will become an unfavorable situation to the economy. Nigeria, India, China and Iran are among countries that face high levels of brain drain for some consecutive number of years.

E.g. Ethiopia is a country facing highest brain drain due to underemployment and 75% of the employees have migrated to other countries within the last 10 years. As a result, the organizations are facing issues in recruiting skilled employees in almost every field.

What is the difference between Unemployment and Underemployment?

Summary – Unemployment vs Underemployment

The difference between unemployment and underemployment can be explained as the economic situation in which an individual who is actively searching for employment is unable to find work (unemployment) and a situation where individuals do not utilize their skills and education optimally in their jobs (underemployment). Employment opportunities are generally low in developing nations thus many individuals migrate to developed nations in search of favorable employment conditions. Government policies should be in place to ensure that the country’s individuals are employed as well as they are employed in jobs that enable them to utilize their education, skills, and ability to work to produce economic output.

Reference:
1.”Unemployment.” Investopedia. N.p., 10 Mar. 2017. Web. 07 May 2017. <http://www.investopedia.com/terms/u/unemployment.asp>.
2.Patton, Mike. “The Five Highest Unemployment Rates In The World.” Forbes. Forbes Magazine, 28 Dec. 2015. Web. 07 May 2017. <https://www.forbes.com/sites/mikepatton/2015/12/28/the-five-highest-unemployment-rates-in-the-world/#378fc4d440a5>.
3.Amadeo, Kimberly. “Overeducated and Underemployed: Thank You, Recession.” The Balance. N.p., n.d. Web. 07 May 2017. <https://www.thebalance.com/underemployment-definition-causes-effects-rate-3305519>.
4.”Unemployment – Unemployment rate – OECD Data.” TheOECD. N.p., n.d. Web. 08 May 2017. <https://data.oecd.org/unemp/unemployment-rate.htm>.

Image Courtesy:
1.”World map of countries by rate of unemployment” By Jolly Janner – (Public Domain) via Commons Wikimedia