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Underemployment - How Benefit Reforms Push People into Low-Paid Jobs

Graham Watson

3rd February 2023

This sort of thing is seen by many as peripheral - and in one sense it is - but in another it's a fundamental problem with current labour markets, and may contribute to rising in-work poverty. According to newly-published research from the Institute for Fiscal Studies, changing benefit rules have created a class of people trapped in low-paid jobs with little prospect of promotion.

There's some fascinating material about the effective marginal tax rates of moving into part-time work from benefits and from part-time work to full-time work, with the latter more heavily penalised since the late 1990s.

It's a great introduction to the concept of under-employment too.

This is worth a listen: How do we get over-50s back into work?

What is under-employment and what can cause it?

Under-employment refers to a situation where a worker is employed but not fully utilizing their skills, education, or experience. This can happen when someone is working in a job that pays less than they are qualified for, or when they are working fewer hours than they would like or need to make ends meet.

There are several factors that can cause under-employment:

  1. Structural changes in the economy: Changes in technology and globalization can result in the loss of jobs in certain industries, leading to workers being underemployed in new, lower-paying jobs.
  2. Lack of skills or mismatch between worker skills and job requirements: If workers lack the necessary skills for the jobs available, they may be underemployed in lower-paying jobs that do not fully utilize their abilities.
  3. Geographic mismatch between job locations and worker residences: If job opportunities are located in different regions from where workers reside, it can result in underemployment.
  4. Discriminatory practices: Some workers, particularly those from marginalized communities, may face discrimination in the labor market that prevents them from finding work that fully utilizes their skills and education.
  5. Lack of job opportunities: In a weak economy, there may be a lack of job opportunities, leading to underemployment as workers take on part-time or low-paying jobs.

Under-employment can have a significant impact on the individual and the economy as a whole, leading to lower wages, reduced consumer spending, and decreased economic growth.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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