We talk of underemployment when people work less hours than they would if they were employed full time or when their occupation doesn’t match their skills or education level. Let’s take two examples to illustrate this definition.
Our first example is a worker who would like to work more hours than he or she currently does but can’t get full time employment. This often leads the individual to cumulate jobs if the number of hours worked is not enough to meet their basic needs.
Our second example is a qualified worker who can’t find a job in his or her area of expertise and is forced to take a job that is below their skills or education level. For example a university graduate who works as a delivery driver because he can’t find a job in his area of expertise. This is what we refer to as an overqualified worker.
The relation between unemployment and underemployment
Underemployment has been steadily going up for the last 30 years. According to the Australian Bureau of Statistics, there were more than 1.1 million workers who were considered underemployed in the first half of 2018. This represents about 9% of the working population. In comparison, the underemployment rate in the 1980’s was only 3% of the working population, almost 3 times lower than what it is today.
In order to get a complete picture of the current employment situation in Australia, we need to consider unemployment and underemployment figures together. The combination of both is called the underutilisation rate. It is the proportion of the workforce that is not utilised by the economy. With the unemployment rate at 5.3% in the first half of 2018, we add up the underemployment rate and the result is an underutilisation rate of about 14%. This means that 1 out of 7 people of the Australian workforce is either unemployed or working part-time.
Young workers and women are the first concerned
Underemployment is directly linked to the economic health of the country. As such, underemployment and unemployment have evolved together in the 2000’s. However, the gap between the two seems to have increased significantly over the last 3 years. While unemployment figures have been slightly going down since 2015, underemployment figures have maintained their steady upwards trend. This means it is very likely that we see double digit rates in the number of underemployed people in the next couple of years.
Workers aged 15 to 24 and workers with the lowest skills or education levels are the first affected by underemployment. Individuals living in rural areas are more likely to be affected by underemployment than people living in cities. What’s more, 6 out of 10 underemployed people are women. People who were or are currently underemployed are also more likely to be underemployed in the future.
What are the causes of underemployment?
One of the main causes of the rise in the number of underemployed workers is that the number of part-time jobs has been growing faster than the number of full-time jobs. From the 1990’s, there has been a shift in the dominant industries from mining and manufacturing to services such as retail, health and tourism. The nature of work has slowly changed and a lot of full time jobs have been replaced by part-time jobs.
When we look at the proportion of part-time jobs across various industries, this transition from traditional full time employment to more casual part-time employment is quite clear. Between 2012 and 2018, the accommodation and food services industry has been the third industry to create the most jobs, behind healthcare and construction. However, it is also the industry where we find the highest number of part-time workers. In the first half of 2018, more than 60% of all the jobs were part-time jobs.
The situation is very similar in the retail sector. Retail is the second biggest industry with the most people employed, and part-time jobs account for more than 50% of all jobs. Healthcare and social services, which I mentioned earlier, is the industry with the most people employed in Australia. It is also the industry that has created the most jobs in recent years. However, 45% of the people employed in healthcare and social services work part-time.
There are other causes that explain why underemployment is going up. Advances in technologies and automation have reduced the number of workers required to do the same amount of work. For example in manufacturing. The high cost of labour means that it is more affordable for a business to employ two workers on a casual basis rather than a full-time worker for the same number of hours.
Competition, changes and uncertainty in the market place means businesses have to adapt if they want to be successful. Businesses need to be more efficient in order to stay competitive. They need employees who are ‘flexible’, who can work more hours when business is booming and fewer hours when things slow down.
The consequences of being underemployed
The first consequence of underemployment is that it creates a situation of job insecurity and financial instability for the workers. The number of hours worked and the income perceived can vary from one week to the next depending on the need for workers and how business is going. Jobs that offer irregular working hours and variable income put workers at risk when they don’t have other sources of revenue. This can become problematic when applying for a mortgage for example.
The second consequence of high underemployment is that it keeps a lid on wages growth. When people think that a part-time job is better than not having a job at all, they are less likely to negotiate their wages or ask their employer for a pay raise. The increasing number of workers who would like to work more hours holds wages down. Low wages growth means households have less money to spend which eventually has a negative impact on the economy.
How to avoid becoming underemployed?
The good news is that solutions to the problem of underemployment exist. At the government level, developing policies that provide incentives for companies that hire full-time workers rather than part-time could prevent further growth. However, workers themselves can minimise the risks of being affected by underemployment by being proactive. They need to adapt to changes and new trends in their business place. This means keeping their skills current and relevant for the market. This is achieved through ongoing education, extra training and additional experiences.
Casual is the new normal
Full-time employment is becoming a thing of the past. Casual employment is becoming the norm in a lot of industries such as healthcare, retail or hospitality. Working part-time can be a personal choice and not all workers in this situation necessarily want to work more hours. However, while this ‘casualisation’ of work allows businesses to be more flexible and efficient, it also puts more stress on the workers and can lead to precarious situations for many of them.
Looking at the numbers, it appears that the jobs are there, that jobs are being created. The three industries mentioned above are employing more and more people every year. The problem seems that despite the number of jobs, there aren’t enough hours for the workers. It will be interesting to see how many jobs will be created this year, and more importantly what proportion of these new jobs will be full-time.