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Is Underemployment the New Normal?

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Today's ONS release confirms the scale of the rise in underemployment. More than one in 10 workers are now underemployed, working fewer hours than they would like to - a million more than in 2008. Recently, this increase has run hand in hand with a flatlining of overall unemployment, as the chart below shows. In this downturn, more than others before it, pressure on employers is feeding through more into reduced hours than reduced overall numbers of staff.

2012-11-28-chart1.jpg

Source: Resolution Foundation analysis of ONS
Notes: Unemployment and underemployment rates are for people aged 16 and over. Both rates are shown for April-June.

How much is this a temporary phenomenon and how much it is a new normal? Although the scale of the recent increase in underemployment is undoubtedly a sign of an anaemic labour market, there is also reason to believe that the balance between unemployment and underemployment may have changed. The incidence of more flexible forms of working - both part-time work and self-employment (part-time and full-time) - has increased significantly from 2000 to 2012, as shown below. During this period, 'traditional' full-time employment rose and then fell, resulting in 2012 levels that are very similar to 2000 levels - remarkably, a near total lack of growth in overall full-time employment over more than a decade. Aside from the obvious fact that part-time workers are more likely to be underemployed, a rise in more flexible forms of work also makes it easier for employers to reduce working hours than if their employees are in less flexible full-time roles.

2012-11-28-chart2.jpg


Source: Resolution Foundation analysis of ONS
Notes: Index (2000 =100) given for April-June

In addition to these shifts in the type of work, policy may also be playing a role. More active attempts from government to encourage people into work have often taken a 'work first' approach, focusing on moving people into work rather than being concerned with the type of employment they move into. In general, this more active approach has proven a success in putting downward pressure on unemployment. As a trade off, though, it may well have left some people working fewer hours than they would like, again tilting the balance, in difficult times, to low hours of employment.

Together, these changes represent a significant shift in the labour market - and in many ways a positive one. A labour market that is able to respond to new challenges flexibly, limiting unemployment, has substantial upsides. And of course, for now, reducing unemployment remains overwhelmingly the main priority, not least because of the long-term harm it causes for earnings potential and psychological wellbeing and the drag it exerts on the wages of those in work. But longer term, there's also a real policy challenge in how we support people who, despite being in work, aren't working enough hours. This is a notoriously tricky thing to get right. Whether it means building on the new regime of in-work conditionality under Universal Credit or taking other routes, if these changes to our labour market are permanent people in work but on low hours will need more support.