Underemployment - Underuse of Employed Workers

Underuse of Employed Workers

The third definition of "underemployment" describes a polar opposite phenomenon: to some economists, the term refers to "overstaffing" or "hidden unemployment," the practice of businesses or entire economies employing workers who are not fully occupied i.e. who are currently not being used to produce goods or services (in other words, employees who are not economically productive, or underproductive, or economically inefficient). This may be because of legal or social restrictions on firing and lay-offs (e.g. union rules requiring managers to make a case to fire a worker or spend time and money fighting the union) or because they are overhead workers, or because the work is highly seasonal (which is the case in accounting firms focusing on tax preparation, as well as agriculture).

This kind of underemployment does not refer to the kind of non-work time done by, for instance, firefighters or lifeguards, who spend a lot of their time waiting and watching for emergency or rescue work to do; this kind of activity is necessary to ensure that if (e.g.) three fires occur at once, there are sufficient firefighters available.

Critics of governments from the public choice school argue that government public services tend to add more staff than they need, because they claim that government managers have an incentive to "build empires"; that is, to increase their apparent importance by creating a larger body of staff (i.e., an "empire") for them to manage. They argue that managers hire a team of technical advisors and then create subordinate groups underneath them to enhance their stature; however, these staffers may have little actual work to do.

This kind of underemployment may exist for structural or cyclical reasons. In many economies, some firms become insulated from fierce competitive pressures and grow inefficient, because they are awarded a government monopoly (e.g., telephone or electrical utilities) or due to a situation of abuse of market power (e.g., monopoly). As such, if they may employ more workers than necessary, they might not be getting the market signals that would pressure them to reduce their labour force, and they may end up carrying the resultant excess costs and depressed profits. In some countries, labour laws or practices (e.g. powerful unions) may force employers to retain excess employees. Other countries (e.g. Japan) often have significant cultural influences (the relatively great importance attached to worker solidarity as opposed to shareholder rights) that result in a reluctance to shed labour in times of difficulty. In Japan, there is a long-held tradition that if a worker commits to serve a company with long and loyal service, the company will, in return, keep the worker on the payroll even during economic downturns. In centrally-planned economies, lay-offs were often not allowed, so that some state-run companies would have periods when they had more workers than they needed to complete their tasks.

Cyclical underemployment refers to the tendency for the capacity utilisation rate of firms (and therefore of their demand for labor) to be lower at times of recession and/or depression. At such times, underemployment of workers may be tolerated — and indeed may be wise business policy — given the financial cost and the degradation of morale from shedding and then re-hiring staff. Alternatively, paying underused overhead workers is seen as an investment in their future contributions to production. This kind of underemployment has been given as a possible reason why Airbus gained market share from Boeing. Unlike Airbus, which had more flexibility, Boeing was unable to ramp up production fast enough when prosperous times returned because the company had dismissed a great part of its personnel in lean times.

Another example is the tourism sector, which is faces cyclical demand in areas where attractions are weather-related. In some tourism sectors, such as the sun and sand tours operated by Club Med, the company can shed bartenders, lifeguards, and sports instructors, and other staff in the off-season, because there is such a strong demand amongst young people to work for the company, because its glamorous beachfront properties are desirable places to work. However, not all tourism sectors find it so easy to recruit staff. Some tourism sectors require workers with unusual or hard-to-find skills. Northern Ontario hunting and fishing camps that require skilled guides may have an incentive to retain their staff in the off-season. Another example is companies which run tours for foreign tourists using staff speaking the travellers' native tongue. In Canada, guided tours are available for Japanese and German tourists in their native languages; in some locations, it may be hard for companies to find Japanese- or German-speaking staff, so the companies may retain their staff in the off-season.