A New Metric for Under-Employment

underemployment

Source: Chmura Economics & Analytics. Positive numbers represent the degree to which supply exceeds demand for three levels of educational attainment. High = B.A. or higher. Medium = Associate’s degree or some college. Low = high school graduate or lower.

by James A. Bacon

It is common knowledge that the official United States “unemployment” figure needs to be taken with a grain of salt. It does not include discouraged workers who have dropped out of the workforce. It does not reflect the increase in part-time employment, some of it involuntary. And it does not reflect underemployment in which Americans work in occupations beneath their level of educational qualification.

My friends at Chmura Economics & Analytics have developed a fascinating technique for measuring under-employment by comparing educational attainment with the skill requirements demanded by the region’s occupational mix. It’s not perfect, as the Chmura team is the first to acknowledge. But it provides a defensible estimate of the amount of slack in the economy nationally, and in each of the U.S.’s 381 metropolitan statistics areas (MSAs).

The underemployment number is a two-edged sword. On the downside, the higher the level of underemployment, the greater the extent to which the nation’s (or a region’s) human capital is not being put to work. Just as investment in buildings, capital equipment and infrastructure represents economic waste if it is under-utilized, it is an economic waste if human capital is under-utilized. As Chmura puts it, “Workers who are underemployed and not necessarily contributing as much as they could to the labor market, represent potential lost productivity, wages, and tax revenue for the region.”

Ironically, underemployment tends to be higher in MSAs with the higher-performing economies, such as Washington, San Francisco, Boston, Raleigh and Boulder, Colo. Why would that be? Perhaps, Chmura suggests, it’s because these are MSAs are desirable places to live where workers are willing to trade off the full utilization of their skill sets in exchange for lifestyle amenities. Thus, the MSA with the highest underemployment in the country turns out to be Barnstable Town, Mass., with its scenic Cape Cod waterfront.

On the upside, a high underemployment rate can be an economic development bonus — it represents a deeper labor pool available to new employers than is evident in the unemployment number alone. If under-employed workers can be to work utilizing their most remunerative skills, they can give a big boost to a regional economy.

To my mind, the most remarkable figure in the table above is the high level of underemployment for higher educated workers in the Washington metro. Does that 12.5% under-employment mean that, even after factoring in higher housing prices and hideous traffic congestion, better-educated employees consider Washington to be a more desirable place than anywhere else in Virginia to live and pursue a career? Perhaps. It also could reflect momentary slack in the labor market due to sequestration-related cuts in federal spending. Perhaps the economy hasn’t been depressed badly enough or for long enough to drive people away.

Either way, the Chmura data provides considerable insight and raises lots of fascinating questions.

There are currently no comments highlighted.

10 responses to “A New Metric for Under-Employment

  1. Perhaps as interesting – if you presume that Chmura is on to something – what the implications are for policy.

    I’d be curious to see how Chimuras metrics work for wider scale.. in other country MSAs.. also.

    someone in another blog made an interesting comment the other day in reference to migrant labor…

    he said – “pick any fruit or vegetable and put it into Google and add the word “harvester” ” and see what you get.

  2. Interesting numbers. But I think I’d rather have a positive number in the column to the right than a negative number.

    I have a friend in HR at Dominion (yes, your new sponsor…shameless plug). She’s made the comment that she can hire kids out of college to work in Richmond for the same or lesser wages than AEP (Appalachian) can for their Roanoke regional HQ. Even though Richmond is a much more costly area to live.

    I think the conclusion is obvious….Millenials are willing to sacrifice income to live in a “cool” place rather than have higher wages in a “boring” place. But that’s pretty obvious to you as you’ve written extensively about Millenials’ desire for “place” and certain amenities.

  3. I guess one question is: What is optimal? Is “optimal” coming up all zeroes, indicating neither a surplus or deficit of workers? If so, wouldn’t Richmond have the “best” labor market? Interested in what Mr. Bacon or the survey says about what measurement an area would “want”….

    • As important and also connected to the “gig” employment world is what Mark Warner has been saying as of late:

      ” The sharing economy is posing new challenges for lawmakers struggling to figure out how drivers for Uber, people who put rooms on Airbnb, and others could receive benefits like health care, unemployment, and workers’ compensation.

      In a speech Thursday at the New America Foundation, Sen. Mark Warner said that because many workers in the sharing economy are considered independent contractors rather than employees, many are not eligible for those benefits that other workers would be able to receive.

      “Many of those programs which were administered and funded by both contributions from the employer and the employee—this is changing that whole relationship in extraordinarily fundamental ways,” Warner said, adding that often workers operate without a safety net when something goes wrong.”

      http://www.nationaljournal.com/congress/sen-mark-warner-wants-washington-to-catch-up-with-the-sharing-economy-20150604

      My impression of Millennials (perhaps wrong) is that they do not really care about things like social security or even health insurance… – at least not yet.

      Many seems to consider payments for FICA and health insurance as drags on their income.

      I think people are fundamentally rethinking the role of govt in these areas.

      Mom and Dad can get Medicare and SS but maybe later on – neither of them will be around and on purpose.

      • My millennial daughter doesn’t think she’ll ever get anything for her SS and Medicare taxes. She’s more interested in taking the best advantage of her company’s retirement savings plan.

        • Good for her TMT. The other thing I’ve noticed is that folks that age
          don’t see the value of insurance… they see it as a terrible waste of limited
          dollars so some of them actually don’t have car insurance or even health insurance unless they are forced to. They’ll actually turn down employer-provided if it gets them more net income.

    • I think “optimal” depends on your perspective. If you’re an economic developer trying to recruit new business investment, having a pool of skilled but under-employed workers is a bonus. If you’re the worker, under-employment probably isn’t so hot.

  4. Two metrics that don’t seem to get as much press as warranted are full-time jobs hours worked and part-time jobs hours worked. Wage levels in many areas probably seek their own natural level so hours seem more significant. Numbers of new jobs created, for example says nothing about overall economy health

  5. Measure the number of college students as a percent of the population. Plot that series against the underemployment metric. Do you get a straight line?

    Lots of students work part time. Lots of college graduates are willing to spend a few years near their alma mater working at relatively menial jobs and extending the college fun for a while. Finally, some graduates just can’t imagine leaving their old college stomping grounds. I know dozens of people who grew up somewhere, went to UVA in Charlottesville and stayed there – doing whatever they could do to earn a living. Many of the now 50-something college educated cooks, carpenters’ helpers and professional dog walkers deeply resent the income and wealth that their classmates who actually tried to succeed have. “Just more proof that the game is rigged” one recently opined.

  6. here’s an interesting tidbit:

    California Says Uber Driver Is Employee, Not a Contractor

    ” In what could prove to be a ruling with serious implications for the on-demand economy, the California Labor Commission has ruled that an Uber driver should be classified as an employee, not an independent contractor.

    The ruling, made in March, came to light after Uber filed an appeal Tuesday evening. The ruling ordered the company to reimburse Barbara Ann Berwick, a former Uber driver, $4,152.20 in expenses and other costs for the period when Ms. Berwick worked as a driver.

    Uber has long positioned itself as a “logistics company,” an app that drivers and passengers use merely to facilitate private transactions, and not a transportation fleet with tens of thousands of employee drivers. The company argued it did not exert any control over the hours its drivers worked and did not require drivers to complete a minimum number of trips, according to the court filing.

    But the Labor Commission cited many instances in which it said Uber acted more like an employer. The ruling noted that Uber provided drivers with phones and had a policy of deactivating its app if drivers were inactive for 180 days.

    ”Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the ruling states. “The reality, however, is that defendants are involved in every aspect of the operation.”

    http://goo.gl/aGjL3X

Leave a Reply