Underemployment Poses Long-Term Financial Risk to More Workers - Southwest Economy, Third Quarter 2011 - Dallas Fed

labor dislocation. In the aftermath of the Great Recession, a significant portion of the potential labor pool remains largely unnoticed. The underemployed and the discouraged—those who have given up trying to find work—are additional indicators of labor dislocation. These are individuals whose diminishing skills and reduced earning capacity may linger well into the recovery. For every five unemployed Texans last December, four others either were underemployed (working 35 hours or less while reporting they sought full-time jobs) or had sought work but quit looking, according to the Bureau of Labor Statistics’ (BLS) Current Population Survey (Chart 1). Nationally, the underemployment rate, which varied considerably across states, averaged 6.4 percent for 2010, with unemployment accounting for another 9.6 percent. Texas, with a 5.7 percent underemployment rate, fared better than the nation and most other states, including the traditional Sunbelt growth states—Georgia, Florida and Arizona. The latter two were especially hardhit by the residential building bust, a lesser factor in Texas. If wages were completely flexible and labor markets perfect, unemployment and underemployment would be largely transitory and low: When the number of willing workers exceeded the number of jobs, wages would fall, reducing labor costs and making it profitable for companies to hire. Yet, many imperfections can keep wages from adjusting freely, and unemployment and underemployment can rise, particularly during economic downturns.