Underemploymentoccurs when one does not have a job that is full-time or that reflects his or her training and financial needs. It is not the same asunemployment, which is the percentage of employable people in a country’s workforce who are over the age of 16 and who have either lost their jobs or unsuccessfully sought jobs in the last month and are actively seeking work.

The formula for underemployment rate is:Number of underemployed / Total labor forceUnderemployment may be most affected by the number of youthful workers in the labor force, who tend to experience more underemployment as they change jobs and move in and out of the labor force, and public policies that may discourage employment or the creation of jobs (such as a highminimum wage, highunemploymentbenefits, and low opportunity costs associated with laying off workers).

Employment is the primary source ofpersonal incomein the U.S. and thus a source of economic growth. This is primarily why underemployment, which is alagging indicator, can provide considerable information about the state of theeconomyand about particular sectors of thateconomy. For example, high underemployment is generally indicates an economy is underperforming or has a falling gross domestic product, suggesting weak labor demand, unproductive labor policies, or mismatches between the demands of workers and employers. Low or falling underemployment may signal increases in the supply of whatever the new jobs produce, which suggests an expanding economy.

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