Underemployment Is a Growing Problem, Even as the Job Market Turns


With the unemployment rate holding steady at 9.7% in February, after dropping from 10% in January, confidence is growing that the job market is finally turning around. But as with all statistics, the unemployment data are complex, and a single number rarely tells the whole story. While the jobless rate is below its peak, other employment trends tell a less optimistic story. In particular, underemployment appears to be a growing problem, and one that may get worse before it gets better.

Underemployment can be measured in different ways. The U.S. Labor Department issues official underemployment numbers (also known as the U-6 statistic), but that number is fairly soft, and it's hard to know exactly how many people are truly underemployed.

Officially, underemployed workers include those who are unemployed and looking for work, those who are settling for part-time work but want full-time work, and those who aren't actively looking for work, although they want to work and are available. In the March unemployment report, the U-6 number rose to 16.8%, up from 16.5% the month before. In a recent survey, Gallop estimated the underemployed population to be 19.9% of the workforce.

Does Bad News Now Hint at Better News Later?

One reason the underemployment number is so high is that after suffering through unemployment for half a year or more, many workers are accepting temporary jobs that move them from unemployed into the underemployed category. Additionally, better temporary job opportunities may be emerging as the economy continues to recover. This is why, in the short run, it's possible for underemployment to increase while the unemployment rate declines.

"A pickup in temporary hires bodes well for more permanent hires later in the year, as employers tend to dip their toes into the pool of hiring via 'temps,' " notes Diane Swonk, chief economist for Mesirow Financial. "Many temps are now working on plant floors, reflecting recent gains in industrial production."

But the question is: Will underemployment be temporary? While some workers may be underemployed for a few months until they can find jobs that better match their skills and preferences, others may be facing much longer periods of marginal employment that fails to provide the hours and income they hope and expect to obtain.

Some of the risks of underemployment are related to location. While the national underemployment rate jumped in February, some individual states have reported underemployment rates much higher. In January, Michigan, California and Oregon had underemployment rates above 20%. South Carolina, Nevada and Rhode Island had rates above 19%. And Arizona, Tennessee and Florida had rates above 18%.

Underemployment Stories

DailyFinance requested stories about underemployment from Seed.com, AOL's network for freelance writers. One story came from Paul Ruth, a newly minted college graduate who finds himself underemployed, trapped in a part-time substitute teacher's role because teaching jobs were slashed in Michigan due to budget deficits. Although education is forecast to be a growth area for jobs, and Ruth has his teaching certification, he must wait until the economic situation in his state improves before he can obtain a full-time position. Given the condition of the manufacturing economy in the industrial Midwest, such an improvement remains theoretical.

Another submission came from Marge Holdorf, who told the story of her husband, Russ Holdorf, a veteran car salesman who is underemployed because he lost his job due to medical issues, and is now forced to adapt to a shakeout in his industry. Unable to secure another salaried sales position, he works a job that pays sales commissions only. Meanwhile, he is expanding his expertise to include selling vehicles over the Internet in anticipation of future opportunities. But no one can say when those opportunities will materialize, or how much income they will provide.

Of course, there are millions of such stories in the economy today. Over the next few months, we'll see how many workers can move into new, permanent jobs -- and how many will remain underemployed, stuck in jobs that hold little hope for advancement and middle-class wages.