Underemployment

Underemployment defined as underuse of employed workers

The third definition of "underemployment" describes a polar opposite phenomenon: to some economists, the term refers to "overstaffing" or "hidden unemployment," the practice of businesses or entire economies employing workers who are not fully occupied i.e. who are currently not being used to produce goods or services (in other words, employees who are not economically productive, or underproductive, or economically inefficient). This may be because of legal or social restrictions on firing and lay-offs (e.g. union rules requiring managers to make a case to fire a worker or spend time and money fighting the union) or because they are overhead workers, or because the work is highly seasonal (which is the case in accounting firms focusing on tax preparation, as well as agriculture). Note that this kind of underemployment does not refer to the kind of non-work time done by (say) firefighters or lifeguards, who spend a lot of their time waiting and watching for emergency or rescue work to do; this kind of activity is necessary to ensure that if (e.g.) 3 fires occur at once, there are sufficient firefighters available.

This kind of underemployed workers may exist for structural or cyclical reasons...

* For example, in Western economies, some firms become insulated from fierce competitive pressures and grow inefficient; they may employ more workers than necessary, and carry the resultant excess costs and depressed profits. In some countries, labour laws or practices (e.g. powerful unions) may force employers to retain excess labour. Other countries (e.g. Japan) often have significant cultural influences (the relatively great importance attached to worker solidarity as opposed to shareholder rights) that result in a reluctance to shed labour in times of difficulty. In centrally-planned economies, lay-offs were often not allowed, so that many workers did not actually do much work on the job.

* Cyclical underemployment refers to the tendency for the capacity utilisation rate of firms (and therefore of their demand for labor) to be lower at times of recession and/or depression. At such times, underemployment of workers may be tolerated — and indeed may be wise business policy — given the financial cost and the degradation of morale from shedding and then re-hiring staff. Alternatively, paying underused overhead workers is seen as an investment in their future contributions to production. This kind of underemployment has been given as a possible reason why Airbus gained market share from Boeing. Unlike Airbus, which had more flexibility, Boeing was unable to ramp up production fast enough when prosperous times returned because the company had dismissed a great part of its personnel in lean times. Another example is the tourism sector, which is notoriously cyclical in areas where attractions are weather-related.

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