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Underemployment stats reveal a real drag on the economy

While unemployment figures are most often used to gauge the job situation and its effect on the economy, the less-publicized underemployment figure could be equally important. Here’s what businesses should know.

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As usual, labor figures are a good news-bad news story that businesses can use to gauge the economic state.

Some good news reported this month: The Labor Department reported the United States added 290,000 jobs in April.

The accompanying bad news reported: The unemployment rate crept up to 9.9 percent.

But there’s another figure that could be a hidden drag on the economy — the UNDERemployment rate — and if you’re a business owner looking for clues to better understand the future of the economy, that statistic is not one to miss.

According to the federal government, the number of people “underemployed” in April 2010 hit 17.1 percent, an increase from 16.9 percent the previous month and nearly double what it was when the recession started. Even if jobs are added and unemployment has stabilized, this figure demands attention

Underemployed people — classified as U-6 workers in government studies — are those working below their skill level and earning less than they could be. It also includes those who are working part-time who want full-time work — a category that includes many retail workers. The underemployment figure also includes those who have simply stopped looking for a job. (Click here to see the Bureau of Labor Statistics table with U-6 workers.)

“Underemployment directly affects the consumer’s pocketbook,” said Howard Davidowitz of Davidowitz & Associates Inc., a national retail consulting and investment-banking firm headquartered in New York City. Davidowitz told SNEWS® that reduced wages due to underemployment make it harder for people to pay their bills or purchase things that would serve to help revive the consumer economy. 

“If you look at the American consumer, they’re on life support,” he said. “When they’re income is slashed through underemployment, they just don’t have money.”

While the Labor Department calculates underemployment, Gallup ( also tracks it and those figures differ. Gallup reported May 4 that, according to its polling, the underemployment rate fell 1.4 points to 18.9 percent, which is the lowest level since Gallup began tracking it in December 2009. While Gallup shows the rate dropping, and the government shows it rising, the bottom line is that there are a tremendous number of underemployed people. When the recession started in December 2007, the underemployment rate was 8.8 percent — or nearly half of what it is today.

Other statistics about the underemployed:

>> In a February survey, Gallup said about 30 million people in the United Staes were underemployed. Gallup also reported that underemployed people spend 36 percent less than those with full-time work.

>> In 2009, U.S. workers lost $148 billion in gross earnings due to underemployment, according to a study from Andrew Sum and Ishwar Khatiwada of the Center for Labor Market Studies.

>> In March, PBS Newshour interviewed Sum and reported, “At an average hourly wage of $12.80, Sum calculates the underemployed are losing out on about $14,500 in income per year. On top of that, they receive less skills training from employers unwilling to invest in part-time staff.

Davidowitz told SNEWS he doesn’t believe underemployment numbers will improve significantly anytime soon. He’s not alone. Robert Reich, former secretary of labor, wrote in the Wall Street Journal in April, “We could be looking at five to eight years before catching up to where we were before the recession began….”

Once the recession ends, he added in that column, many people will still not be able to reach their earnings potential. “Americans will once again be employed,” Reich said, “but they will also be back on the downward escalator of declining pay they rode before the Great Recession.”

–Marcus Woolf