Working Nine to Three

The rate of underemployment has remained persistently high in a number of developed countries. We need a new policy response to tackle this social problem.

In the summer after I left school I got a job in my local town. I worked in a small factory assembling makeup shelves for Maybelline New York. Somewhat surprisingly I wasn’t employed by Maybelline. I wasn’t even employed by the factory who made the shelves for them. I was working for myself, sub-contracting my shelf assembly services. This had various advantages for the factory, they didn’t have to offer me a fixed set of hours and could call me whenever they needed an extra pair of hands. It was probably advantageous for me too. I doubt it would have been feasible for them to have employed me without this kind of flexibility. (I wasn’t particularly skilled in shelf assembly to put it mildly.) This type of arrangement where individuals are hired as “independent contractors” was relatively infrequent 10 years ago but has become more commonplace in advanced economies. This evolution in the structure of the labour market might mean that some of our traditional metrics of its health, such as the headline rate of unemployment, are becoming less accurate as proxies for its overall performance.

A glance at the most recent US labour market statistics released on Friday would imply that the jobs market is in a state of rude health. Wages are up by 0.5% and the headline rate of unemployment has fallen to an eight-year low and dipped below the symbolic 5% mark. However, the measure of underemployment – a metric which includes part time workers who want to work more hours – remains stubbornly high at 9.9%. This is somewhat surprising as one would expect rising wages to reduce the underemployment rate. It is a pattern which is repeated across much of the developed world: a low unemployment conceals a much higher rate of underemployment. In other words, lots of people are in work but a significant proportion of them don’t have enough of it. The persistence of a high underemployment rate is pretty troubling because many of the social ills which are associated with unemployment, such as higher rates of mental illness, are associated with underemployment too.

Many have attributed the rise in underemployment to the growth of online platforms which facilitate peer to peer working such as Uber, AirBnB and TaskRabbit who champion this relationship between employers and workers. They claim the rise of the so-called “sharing economy” means more and more of us find ourselves in flexible working patterns with no set hours. So while lots of us have a job, there is no guarantee that they are providing us with enough work to support ourselves. Whilst it is certainly true that these platforms could be responsible for at least some of the rise in underemployment. It is equally possible that they are holding the rate of underemployment down by providing supplementary work to those who are working part time and would otherwise count themselves as underemployed. Indeed, evidence from a survey of Uber drivers suggests that the majority use Uber to supplement an existing form of employment rather than relying on it as their sole source of income. What we can say with some certainty is that the trend toward using self-employed contractors, who have no fixed hours, was well underway before the likes of Uber even came onto the scene.

Whatever the cause, the underemployment problem demands a policy response. One option, which has been floated by the Oxford economist Anthony Atkinson, is a comprehensive jobs guarantee which covers unemployment and underemployment. Under this plan, the state would provide a pot of money to subsidise jobs for those who are unemployed or underemployed. There are reasons to be sceptical about these kind of schemes, one can question the quality of the jobs that they tend to produce. They also tend to be very expensive. In a tight fiscal environment, a less dramatic option is try to build the profile of the issue by putting more focus on our measurement of underemployment. For instance, the British economists David Bell and David Blanchflower have produced an underemployment index which gives us a more robust tool for measuring the underemployment rate. However even in countries such as the United States where the underemployment rate is more formally measured it rarely garners much attention. Finding a solution to the underemployment problem, then, is looking like a tough job.

George Robinson is a Thouron Scholar at the University of Pennsylvania. Before moving to the United States he worked as a policy adviser for HM Treasury. He has an MPhil in Politics from the University of Oxford.

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