Underemployment is a measure of employment and labor utilization in the economy that looks at how well the labor force is being utilized in terms of skills, experience and availability to work. Labour that falls under the underemployment classification includes those workers who are highly skilled but working in low paying jobs, workers who are highly skilled but working in low skill jobs and part-time workers who would prefer to be full time. This is different from unemployment in that the individual is working but is not working at his full capability.
The unemployment rate, which receives the majority of the national spotlight, can be misleading as the main indicator of the job market’s health because it does not account for the full potential of the labor force. The U.S. unemployment rate was 4.3% as of May 2017, but at the same time, the U.S. underemployment rate was 8.4% – see graph below. The unemployment rate is defined by the Bureau of Labor Statistics (BLS) as including “all jobless persons who are available to take a job and have actively sought work in the past four weeks.” As illustrated by the engineering major who works as a delivery man, a measure of underemployment is needed to express the opportunity cost of advanced skills not being used.
Furthermore, the unemployment rate is calculated based solely off the labour force, which does not include persons who are not seeking a job. There are many instances in which a person is able to work but has become too discouraged to actively seek a job. Below is a very good video clip from PBS where the underemployment rate in Illinois was 10.3% last year.