What Is Underemployment? Definition, Causes and Examples
By Markets & Investing DeskUpdated Nov 10, 2026
Definition
Underemployment is when people have work but not enough of it: fewer hours than they want, or a job that uses less of their skills and training than they could offer.
Key takeaways
- Underemployment measures labor that is employed but underused, in hours or in skills.
- The two main forms are visible underemployment (too few hours) and invisible underemployment (a job below the worker's skill level).
- In the U.S., the Bureau of Labor Statistics (BLS) captures part of underemployment in the U-6 measure, which adds involuntary part-time workers and marginally attached workers to the unemployed.
- Recessions, layoffs and technological change are common triggers.
- Skill mismatch is hard to measure and does not appear in U-6.
Underemployment is the situation in which people have work but not enough of it, or not the kind their skills and training qualify them for. An underemployed worker is either working fewer hours than they want and are available to work, or holding a job that uses less of their education, experience or skill than they could offer. Underemployed people are counted as employed in the official unemployment rate, which is why economists track underemployment separately to see how fully the labor force is being used.
What Is Underemployment?
The key word in any definition of underemployment is involuntary. A student who chooses a 20-hour week, or a retiree who takes a simple part-time job for social reasons, is not underemployed. The term applies when the worker wants more hours or a better-matched job and cannot get one.
That separates underemployment from unemployment. An unemployed person has no job, is available to work, and has actively looked for work in the past four weeks. An underemployed person has a job. Underemployed workers therefore do not count as unemployed in the headline U.S. unemployment rate (U-3). They sit inside the “employed” total, so a falling unemployment rate can hide workers who have moved from no job into a job that falls short of what they need.
How Underemployment Works
Underemployment shows up in three broad forms.
Visible underemployment is a shortfall in hours. The worker is in their field or a related one but cannot get full-time hours, and may hold two or more part-time jobs to cover expenses. The BLS calls these workers “part time for economic reasons”: they usually work fewer than 35 hours a week, want and are available for full-time work, and are on short hours because business is slack or because they could only find part-time work.
Invisible underemployment is a shortfall in job quality. The worker may be full time, but in a role that does not match their qualifications and usually pays well below what they could earn in their field. It is called invisible because hours data do not reveal it.
Hidden underemployment covers people who would like to work but have stopped searching. The BLS classifies someone as marginally attached to the labor force if they want a job, are available, and have looked for work in the past 12 months but not in the past four weeks. A subset, discouraged workers, gives a job-market reason for not looking, such as believing no jobs are available for them. Because they have not searched recently, they are outside the labor force and do not enter the standard unemployment rate.
Interpreting Underemployment
A basic underemployment rate divides underemployed workers by the labor force:
Underemployment rate = underemployed workers ÷ labor force × 100
In practice, the most cited U.S. figure is the BLS’s U-6, the broadest of its six “alternative measures of labor underutilization”:
| Measure | What it counts |
|---|---|
| U-1 | People unemployed 15 weeks or longer, as a share of the labor force |
| U-2 | Job losers and people who completed temporary jobs, as a share of the labor force |
| U-3 | Total unemployed, as a share of the labor force (the official rate) |
| U-4 | U-3 plus discouraged workers |
| U-5 | U-4 plus all other marginally attached workers |
| U-6 | U-5 plus people employed part time for economic reasons |
For U-4 through U-6, the denominator is also widened to include the added discouraged or marginally attached workers, since they are not in the labor force to begin with.
Hypothetical example. Suppose a region has:
- Labor force: 200,000
- Unemployed: 8,000
- Marginally attached (not in the labor force): 2,000
- Employed part time for economic reasons: 6,000
U-3 = 8,000 ÷ 200,000 = 4.0%
U-6 = (8,000 + 2,000 + 6,000) ÷ (200,000 + 2,000) = 16,000 ÷ 202,000 = about 7.9%
The part-time workers add to the numerator only, because they are already in the labor force as employed people. The marginally attached add to both numerator and denominator. U-6 will always be at least as high as U-3, and the gap between the two shows how much slack the headline rate leaves out.
U-6 still says nothing about the engineer driving for a delivery service at full-time hours. Skill-based underemployment needs separate data, typically comparing workers’ education or credentials with the typical requirements of their jobs.
Why Is Underemployment Important?
The unemployment rate gets most of the attention, but it reflects only people who are jobless and actively searching. It can look healthy while many workers are stuck on short hours, in mismatched jobs, or out of the search entirely. Watching U-6 alongside U-3, together with the labor force participation rate (the share of the civilian noninstitutional population aged 16 and over that is working or looking for work), gives a fuller reading of the labor market.
Underemployment also has a direct economic cost. Labor is one of the factors of production, and an economy that leaves skills idle produces less than it could. The forgone output is an opportunity cost: the value the engineer could have created in an engineering role, minus what they create delivering food. Across millions of workers, that gap weighs on productivity, innovation and GDP.
For individuals, the costs include lower wages, slower career progression, and weaker access to benefits that often come with full-time roles. Skills that go unused can erode over time, which makes it harder to move back into a well-matched job later. Job dissatisfaction, frustration and anxiety are commonly associated effects.
Causes of Underemployment
- Recessions and their aftermath. When companies cut costs, they lay off qualified workers and trim hours. Displaced workers may take whatever is available, and employers may hire back part time before restoring full-time positions.
- Technological change and automation. As job descriptions change or tasks are automated, some workers retrain, some leave the labor force, and those without the time or money to retrain are exposed to underemployment.
- Structural mismatch. The skills workers have may not match what local employers need, or jobs may be concentrated in places workers cannot easily move to.
- Oversupply of credentials. When more graduates enter a field than it can absorb, some take roles that do not require their degree.
Examples of Underemployment
- A graduate with an engineering degree works full time as a pizza delivery driver because they cannot find an engineering job. This is invisible underemployment: full hours, mismatched skills.
- An office worker gets 25 hours a week but wants and is available for 40. Their employer has cut hours because business is slow. This is visible underemployment, and the worker counts in U-6 as part time for economic reasons.
- A laid-off machinist searched for months, found nothing, and stopped looking six weeks ago, though they would take a job if offered. They are a discouraged worker, outside the labor force, and enter U-4 through U-6 but not U-3.
In each case, the worker could contribute more to the economy than their current situation allows.
Limitations of Underemployment
Skill mismatch is subjective. Whether a job “underuses” someone’s skills depends on how skills and job requirements are defined. Two analysts can reach different underemployment figures from the same workforce.
U-6 is partial. It captures involuntary part-time work and marginal attachment, but not full-time workers in jobs below their qualifications.
Hidden underemployment is hard to measure. People who have quit looking are difficult to identify, and survey answers about wanting work and availability depend on self-reporting.
Definitions differ across countries. Thresholds for full-time work and the treatment of marginal attachment vary, so cross-country comparisons need care.
FAQs
What is the difference between underemployment and unemployment?
Unemployment means having no job while being available and actively searching. Underemployment means having a job that provides too few hours or uses too little of the worker's skills. The official unemployment rate counts the first group only.
How do countries reduce underemployment?
Mainly by growing the economy so employers need more full-time and skilled workers. Governments can lower interest rates or taxes to stimulate demand, invest in infrastructure, offer tax breaks and loans to businesses, and fund retraining programs that help displaced workers move into roles matching current demand.
The Bottom Line
Anyone reading labor market data should know that the official unemployment rate counts underemployed workers as employed, so a low U-3 can mask people stuck on short hours or out of the job search. Comparing U-6 with U-3, along with the labor force participation rate, gives a fuller reading of the labor market. Even U-6 misses full-time workers in jobs below their qualifications, so skill mismatch requires separate data.
