Underemployment vs Unemployment: What’s the Difference?

The U.S. unemployment rate is the lowest it has been since the Great Recession, yet our research shows four in 10 recent college graduates are underemployed. This isn’t a contradiction, and in fact the two trends can easily live side-by-side.

This issue of unemployment vs underemployment has been one of the most common questions we’ve had since releasing our report with Strada Institute for the Future of Work: The Permanent Detour: Underemployment’s Long-Term Effects on the Careers of College Grads. We found 43% of college graduates had first jobs that did not require a bachelor’s degree—and those graduates were likely to still be underemployed five or 10 years later.

So why doesn’t a white-hot job market solve the problem of underemployment as well? What’s the difference?

Officially, unemployment refers to people who don’t have a job and are currently looking for one.  The U.S. unemployment rate dropped to 3.9% in April 2018, a point where there is about one open job for every available worker in the U.S.

Underemployment, by contrast, means people who are employed at a lower level than their qualifications. For the Permanent Detour report, we looked at college graduates working in jobs that don’t require a bachelor’s degree. The specific percentage of underemployed graduates varies depending on major, occupation, gender and other factors. STEM majors, for example, are less likely to be underemployed, and women are more likely to be underemployed than men.

Because while the economy is producing jobs, it may not be producing jobs appropriate for college graduates—or college graduates may not have the specific skills required.

For example, in a recent skills gap analysis for the U.S. Chamber of Commerce Foundation, we found that demand exceeds the supply of available workers by 15% in the transportation sector and 9% in the building and construction maintenance sector. But those jobs generally don’t require college degrees, so any college graduates who take them would be underemployed.

On the other hand, there’s an even bigger demand for health care practitioners (44%), which is dominated by college graduates. Yet this sector also requires licenses, certifications, and other qualifications. Not just any college graduate can apply, and training in the field takes time.

Another factor, identified in the Permanent Detour report and in previous Burning Glass research, is “upcredentialing,” where employers request bachelor’s degrees for jobs that previously did not require them. Roles in Human Resources, Executive Assistants and Executive Secretaries, and Meeting Planners are among the occupations where a degree has effectively become a requirement. In some cases, the technical skills demanded in a job have become more complex, but mostly this seems to be because employers are using the bachelor’s degree as a proxy for “soft skills,” like communication, meeting deadlines, and working in teams.

So low unemployment and high underemployment can go together. In fact, more evidence of this comes from a recent Federal Reserve Bank of New York study, using somewhat different definitions, but looking at underemployment and unemployment since 1990. From the chart, it’s clear that there’s a certain amount of underemployment in good times and bad.

That means the problem of underemployment isn’t going to get fixed by an upturn in the economy. A solution is going to require a more focused effort on making sure the first job for more graduates makes full use of their qualifications. A bad start has lasting consequences, even in a good job market.

Read our full report on the Permanent Detour today.

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