Underemployment reflects under-utilization of the productive capacity of the labour force. The concept of underutilization is a complex one with many facets. In order to draw a more complete picture of underutilization, one needs to examine a set of indicators which includes but is not limited to labour force, employment-to-population ratios, inactivity rates, status in employment, working poverty and labour productivity. Utilizing a single indicator to grasp labour underutilization will provide an incomplete picture.
Underemployment has been broadly interpreted and has come to be used to imply any sort of employment that is “unsatisfactory” (as perceived by the worker) in terms of insufficient hours, insufficient compensation or insufficient use of one’s skills. The fact that the judgement about underemployment is based on personal assessment makes it a concept that is difficult to quantify and to interpret. It is better to deal with the more specific (more quantifiable) components of underemployment separately. “Visible” underemployment can be measured in terms of hours of work (time-related underemployment), whereas “invisible” underemployment, which is measured in terms of income earned from the activity, low productivity, or the extent to which education or skills are underutilized or mismatched, are much more difficult to quantify. Time-related underemployment is the only component of underemployment to date that has been agreed on and properly defined within the international community of labour statisticians.
Statistics on time-related underemployment are useful as a supplement to information on employment and unemployment, particularly the latter, as they enrich an analysis of the efficiency of the labour market in terms of the ability of the country to provide full employment to all those who want it. In fact, the resolution adopted by the 19th ICLS in 2013, restated the definition of time-related underemployment and its central role as a measure of labour underutilization. A new indicator meant to account for time-related underemployment and to supplement the unemployment rate was also introduced, the “combined rate of time-related underemployment and unemployment” (calculated as the number of persons in unemployment or time-related underemployment as a percentage of the labour force). Thus, the indicator on time-related underemployment can provide insights for the design, implementation and evaluation of employment, income and social policies and programmes. Particularly in developing economies, people only rarely fall under the clear-cut dichotomy of either “employed” or “unemployed”. Rather, many workers will be the underemployed who eke out a living from small-scale agriculture and other types of informal activities.
Whereas unemployment is the most common indicator used to assess the performance of the labour market, in isolation it does not provide sufficient information for an understanding of the shortcomings of the labour market in a country. Low unemployment rates do not necessarily mean that the labour market is healthy. The low rates may mask the fact that a considerable number of workers work fewer hours, earn lower incomes, use their skills less, and, in general, work less productively than they could do and would like to do. As a result, many are likely to be competing with the unemployed in their search for alternative jobs and a clearer picture of the underutilization of the labour force can be gained by adding the number of underemployed to the number of unemployed as a share of the overall labour force. Therefore, the time-related underemployment indicator can assist in building a better understanding of the true employment situation.