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April 24, 2019

Understanding "underemployment"

A Starbucks barista in Chicago, IL.

Sorbis/Bigstock

A media trope that emerged following the Great Recession was that of the overeducated coffee barista.

“A PhD with your coffee?” blared a 2013 headline in the Independent. “Barista serving your drink might be better educated than you are.”

It became a symbol of a “Lost Generation” struggling to pay back student loans and employed in low-wage jobs because they were unable to put their skills to their highest use. These workers might not show up in the official unemployment rate, but they certainly weren’t working or earning up to their potential.

A paper in the April issue of the American Economic Journal: Macroeconomics sets out to get a better understanding of the dynamics of US “underemployment”—the fraction of college graduates working in occupations with lower-skill requirements—and its relationship to unemployment.

Authors Regis Barnichon and Yanos Zylberberg say that, during times of high unemployment, some well-educated workers seek out lower-skilled jobs that will be easier to obtain due to heightened competition for higher skilled positions. They also find that while the underemployment rate follows the same counter-cyclical path as the unemployment rate, it can lag a year or two behind.

Figure 1 from Barnichon et al. (2019)

The figure above tracks the unemployment rate (red dashed line) and underemployment rate (solid blue line) from 1983 to 2013. Periods of recession are marked by the vertical shaded areas. The fraction of US college graduates working in lower-skilled occupations increased from 38.5 percent in 2008 to 41.5 percent in 2012. That translates to an increase of three million underemployed workers in just four years, almost half as much as the increase in unemployed workers over the same period.

The figure shows that underemployment rises when the economy slows and more people are out of work, but also lags unemployment by five to eight quarters. The authors say that underemployment is not only costly to individuals because they earn substantially less than peers who are putting their skills to the highest use, but also that those workers can remain underemployed for a long time.