Tag: Flexible labour market

Unemployment is a term that economists and non-economists are familiar with, even if the non-economists perhaps have a less stringent definition of what we term unemployment. Typically, we say you are unemployed if you are of working age and available for work at the current wage rate, but are not in work. Another important and related concept is that of underemployment, which according to the ONS, is a growing problem in the economy.

Latest figures released by the ONS show that just over 10% of all workers in the UK would like to work more hours each week. This is essentially what underemployment is and it typically affects part-time workers who want to move closer to a full-time job, but are unable to find the necessary hours from their employer. As the economic situation in the UK worsened after the financial crisis, unemployment increased rapidly. Some people went from working full-time to part-time and others simply lost their job. As the economy started to stabilize, people began returning to work, but many found that part-time employment was the only option, despite wanting to work many more hours at the going wage rate. As the ONS said:

During this period [the economic downturn] many workers moved from full-time to part-time roles and many of those returning to work after a period of unemployment could only find part-time jobs … Of the extra one million underemployed workers in 2012 compared with 2008, three-quarters were in part-time posts.

The increase in underemployment has levelled off and though the recession has been a key contributing factor to the higher levels of underemployment, it’s important to note that it can be caused by a few things, as outlined by the ONS.

• employers only being able to offer a few hours of work each week
• workers, such as bar staff, being in jobs where they are only required for a few hours a day
• personal circumstances changing so that someone now wants to work more hours than before
• people settling for a part-time job as second-best when they would much rather have a full-time one

Although many people are happy with their part-time jobs and hence would not see themselves as underemployed, for those who are underemployed, the fact that they cannot find sufficient hours seems to indicate an inefficiency within the economy, especially if long-term unemployment or underemployment emerges. This problem is particularly relevant amongst the young and those in low-skilled jobs. However, it is also an increasing problem amongst the self-employed.

The implications of underemployment are far-reaching. Naturally it adversely affects an individual’s financial situation, which at the current time with rising household bills can have devastating consequences. There are also wider effects such as the economic implications in terms of economic growth and inefficiency, as well as a potential increased strain on the tax and benefits system. Given these far-reaching consequences, it is an issue that everyone should be concerned about. The following articles consider the growth of underemployment in the UK economy.

Underemployed workers jump by 1m since financial crisis Telegraph, Rebecca Clancy (28/11/12)
Underemployment affects 10.5% of UK workforce (including video) BBC News (28/11/12)
Economic crash leaves an extra 1million workers under-employed and wanting more hours Mail Online (28/11/12)
UK is underemployed: should we be surprised? BBC News, Stephanomics, Stephanie Flanders (28/11/12)
Unemployment affects 1 in 10 workers, ONS says Guardian, Mark King (28/11/12)
One in 10 workers no underemployed Financial Times, Brian Groom (28/11/12)
Underemployment rises to affect one in ten workers Channel 4 News (28/11/12)


  1. What is the difference between unemployment and underemployment? Is one worse than the other?
  2. Why did underemployment initially begin to rise after the financial crisis and what factors helped to slow the increase?
  3. How can underemployment be measured? Is it likely to be accurate?
  4. Part-time work has risen in recent decades, as part of a more flexible labour market. Do you think this is a good thing or does it add to the problem of underemployment?
  5. What are the economic implications of underemployment? You should think about the effects on an individual, their family, society and the wider economy.
  6. How can someone who is self-employed be classed as underemployed?
  7. What action, if any, can be taken by the government to tackle the rising problem of underemployment?

It is often said of statistics that you can make of them whatever you want to. Well, this appears especially true of the latest labour market figures from the Office for National Statistics. Firstly, the good news: unemployment fell. But, secondly, the not so good news: the number of economically inactive individuals rose to an all-time high. So what are we supposed to make of the latest figures? And, are there any other little gems to be uncovered in the latest set of labour market numbers?

At its most simple, an economically active individual is somebody 16 or over who is either in employment or is unemployed but actively seeking work. In the three months to January 2010, the total number of economically active individuals in the UK stood at 31.309 million, of which 28.860 million were employed and 2.449 million were unemployed. The number unemployed in the previous three months had been at 2.482 million. When expressed as a percentage of those economically active, the unemployment rate has fallen from 7.9% in the previous three months to 7.8% in the three months to January.

The total number of economically inactive individuals of working age, i.e. those aged 16 to 59 (women) or 64 (men), stood at 8.157 million in the three months to January, which, as well being an historic high, was a rise from 8.009 million in the previous three months. This converts into an inactivity rate amongst those of working age of some 21.5%, the highest since the three months to October 2004. A key point though is that inactivity rates do tend to rise either during periods of rising unemployment and/or following prolonged periods of relatively high unemployment. For instance, following the early 1990s downturn the rate of inactivity peaked at 22.1% in the three months to January 1995. In comparison, following the boom of the late 1980s the rate, the inactivity rate began the 1990s at only 19.3% – a record low. A large contributing factor to the rise in inactivity in the three months to January has been the rise in the number of students not in the labour market to 2.13 million, an increase of some 98,000 over the three months. Again, parallels can be drawn with the early 1990s because this is the highest number of students not in the labour market since comparable figures began in 1993.

In part, it appears that inactivity levels reflect perceptions amongst individuals of the probability of finding employment. So, while unemployment has fallen by 33,000 over the latest three months we do have to keep in mind that inactivity has increased by 149,000. Therefore, this may be a case of a ‘jobless’ decrease in unemployment!

Some commentators, however, are more optimistic about the current trend in unemployment, pointing to the fact that unemployment levels have not hit the levels predicted, despite the economy contracting by 5% in 2009. They point to the flexible labour market. Of course, time will tell if this is truly a ‘benefit’ of a more flexible labour market. But, what is clear is that one manifestation of a changing structure to the UK labour market is the growth in part-time work. In the three months to January, 26.69% of those employed were employed part-time: this was another record high which seems to have been largely lost in the mass of statistics.


Unemployment falls as ‘economic inactive hits record’ Telegraph, Harry Wallop (17/3/10)
Unemployment plunge boost economy hopes thisismoney, Ed Monk (17/3/10)
UK unemployment records further fall BBC News (17/3/10) )
Gordon Brown given unexpected boost by fall in unemployment Guardian, Kathryn Hopkins and Julia Kollewe (17/3/10)
Not lagging, but not leading either BBC News blogs: Stephanomics, Stephanie Flanders (17/3/10)


Latest on employment and unemployment Office for National Statistics (17/3/10)
Labour market statistics, March 2010 Office for National Statistics (17/3/10)
Labour Market Statistics page Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission


  1. What factors do you think could affect labour market inactivity rates?
  2. How might inactivity rates affect an economy’s potential output?
  3. What factors do you think will have contributed to the growth in part-time employment in the UK?
  4. The UK economy came out of recession in the last quarter of 2009. Does this mean that unemployment will continue to fall from now on?