America's Underemployment Issue

November 20, 2013

The nation's lackluster economic performance continues to be a concern. This is evident in stubbornly high unemployment rates, which continue to be well above historic norms. There is another indicator, which may be even more important -- underemployment, says Wendell Cox, an adjunct scholar with the National Center for Policy Analysis and principal of the consulting firm Demographia.

Both rates are reported by the Department of Labor, Bureau of Labor Statistics (BLS). The national underemployment rate is far higher than the unemployment rate.

  • The 2012 underemployment rate was 14.7 percent, compared to the unemployment rate of 8.1 percent.
  • The total unemployed population was 12.5 million in 2012, while the total underemployed population was 23.1 million.

The number of underemployed may be higher.

  • Researchers at Gallup estimated the nation's underemployment rate at 17.4 percent in August, well above the BLS August figure of 14.7 percent. The Gallup estimate would place underemployed workers at more than 27 million.
  • Underemployment in the states is highest in some Western and Midwestern states. For the 12 months ended June 30, Nevada had the highest underemployment rate, at 20.3 percent. California was second, at 19.3 percent, while Oregon had the third highest underemployment rate, at 16.9 percent. Michigan and Illinois were tied for fourth highest, at 16.1 percent.

The productivity gap that results from underemployment constrains the U.S. economy at a time of unusually severe financial challenges. College graduates face not only a grim employment market, but have student loan repayments that require good jobs. The nation continues to spend more than it collects in taxes. The inability of state and local governments to fund their government employee pension programs could lead, in the worst case, to much higher taxes or severe service cutbacks.

Yet things could get worse. The soon to be implemented "Patient Protection and Affordable Care Act" has built-in incentives for employers to shift workers to part-time status. The law exempts them from providing health insurance for employees who work part-time and so some establishments are shifting full-time employees to part-time status.

All of this points to an important policy implication: The necessity of focusing on the underemployment measure, the improvement of which is so crucial to maintaining and improving the standard of living and reducing poverty (by reducing the productivity gap).

Source: Wendell Cox, "Underemployment in America," New Geography, October 29, 2013.

 

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