The Effects of Underemployment and How to Break the Cycle

Posted by Sheena Allen in CareerAugust 2, 2021(Last Updated February 14, 2022)5 min read
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We often hear the word unemployed, when a capable person actively seeks but does not have a job. However, we seemingly skip over the issues regarding underemployment, which is when a person is working but not to the full extent of their desires, abilities, or education. While multiple factors can contribute to underemployment, the main factor is the person not finding a desirable position in one’s field of choice, leading to one accepting a job that does not necessarily match their skill set.


Notable is that underemployment takes precedence in a downward economy. For example, suppose someone went to school to become a lawyer. In that case, they will seek to put their education and skillset to use by entering the legal field after passing the bar examination. However, suppose the recent graduate has trouble landing a job as a lawyer. In that case, especially if the economy is not performing well and jobs aren’t hiring, the person with a law degree will have to settle for a lower-level position that is not in the legal field to have some income level.


Percentage of Underemployed Workers


As of May 2020, the underemployment rate in the United States was 22.8%, according to the Federal Reserve of St. Louis. This statistic is alarming as more than 1 in 5 people in America’s labor force are not using their skillset. Of the 22.8% underemployment rate, 15.2% of those workers are between 18 and 24. The younger workers are most likely falling into the underemployed category because they are working a minimum wage job to earn money to help pay for their expenses. 


To further analyze the underemployment rate regarding racial backgrounds, 14% of Latinx and 12% of African-American workers are underemployed compared to 7% Caucasians. 


Types of Underemployment


Underemployment consists of two main types, which are visible and invisible


Visible underemployment is when an employee works less than the usual hours in their field. This usually leads the employee to work multiple jobs to obtain more hours to earn more money.



Invisible underemployment is when a person works a job that does not utilize their skills. This type of underemployment is tough to determine as it requires a significant amount of research to decide which workers fall under this category.


Causes of Underemployment


There are three leading causes of underemployment which include the following:


Business Cycle


The first and primary cause of underemployment is when the economy enters a recession. A recession is when the economy is experiencing lower levels of purchases by consumers. As a result of the lower levels of purchases, some companies may decide to lay off employees to save money and maintain a profit. When employees are laid off, this will cause the unemployment rate to increase. 


Supply and Demand


The second cause of underemployment is the supply and demand of a job/industry. When an industry has more qualified workers (supply) than jobs available (demand), there is an excess of workers. This leads workers who could not land a job in their preferred field to go job hunting in other areas that most likely do not fit their skill set, causing underemployment.


Technological Evolution within an Industry


Like the Industrial Revolution, when there is an opportunity for a business to cut costs by implementing a machine where a person used to work, the person will not have a job anymore. Likewise, due to technological advancements within an industry, an employee may be out of a job and look for other sectors.


How do you know if you’re underemployed?


Here are some significant factors to look out for when searching for a job to ensure the job is the right one for you.


Overqualified or Invisible Underemployment


The first sign is if you feel you are overqualified for the position. When applying for a job, it is essential to make sure that the requirements for the job are the ones you are looking for and will help you grow in your respective field. If you feel the job is not challenging you to get better or strengthen your skillsets, then chances are you are underemployed. This type of underemployment is more challenging to notice as you don’t know the person’s skill set until you have either talked with them or seen their resume. Therefore, this type of underemployment is challenging to account for, leading to government agencies not wasting resources to determine the exact number of invisibly underemployed people.


Not Working Enough Hours or Visible Underemployment


Another key indication of being underemployed is the number of hours you’re working—usually, a full-time employee works 40 hours per week. So if you want to work 40 hours per week, yet you’re getting 20-30 hours, this is one of the signs of knowing you are underemployed. This type of underemployment is visible and easy to observe as a worker must work more hours/jobs to help financially support herself and the people she is supporting.


Break the Cycle of Underemployment


As underemployment is a serious issue, some steps can be taken to aid you in moving towards finding a job that fits your skillset. 


Improve Your Resume


A resume is how your potential employer will first learn about you and what you can do. Therefore, it is crucial to make an excellent first impression. Websites such as Resume-now have templates and pre-made role descriptions which can help you better describe your past experiences. 


Network


Nowadays, it doesn’t matter if, on paper, you are the most qualified candidate for the job. It is all about who you know, not what you know; therefore, network with people in your respective field and develop a genuine connection with them. By doing so, there is a chance they will introduce you to someone within their network to help you find a suitable job. You can find people to reach out to through LinkedIn by researching which field (or company) you wish to work in.


Likely, if you are underemployed, every cent of the money you are earning counts. At CapWay, we offer Money Accounts with no hidden fees, such as an overdraft or minimum balance fee. Eliminating these fees allows you to have full access to your money. Another plus to having a CapWay debit card and Money Account is the ability to get early access to your paycheck if they are using direct deposit. Our early pay benefit is vital for many living paycheck-to-paycheck.


Have you experienced underemployment? Let us know in the comments below.

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