The Consequences of Underemployment for the Underemployed

Abstract

Underemployment is generally conceived as excess labour supply associated with employed persons — that is, as a situation where employed persons would like to work more hours at prevailing wage rates. Using information collected by the 2001 Household, Income and Labour Dynamics in Australia survey, this study examines the effects of underemployment on outcomes such as income, welfare dependence and subjective well-being. Results obtained imply that, while unemployment clearly has greater adverse consequences, underemployment is nonetheless associated with significant detrimental effects on the outcomes examined. Negative effects are found for both part-time employed and full-time employed workers who would prefer to work more hours, but effects are greater for underemployed part-time workers, and are particularly large for part-time workers who would like to work full-time. Indeed, for part-time workers seeking full-time employment, adverse effects attributable to underemployment are, for some outcomes, not far short of those attributable to unemployment.