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Effects of Underemployment

Last Updated : 15 Jun, 2022
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In comparison to most developed and developing nations, India enjoys a significant labor market advantage. But along with having a good labor market, there is a problem that currently India is facing, which is underemployment. Some people who are highly qualified yet now work in low-paying or low-ability professions are considered underemployed. At the point when more than the required number of individuals are occupied with useful exercises and where creation isn’t influenced even by their nonappearance, it is called underemployment. This sort of joblessness is additionally called disguised unemployment.

Thus, those people who are in such underemployed category and working as full-time employees can’t able to fulfill their necessary daily requirements and hence they face financial problems. Sometimes, this underemployment is similar to unemployment in many ways. According to CMIE data, urban unemployment increased to 9.78% in August from 8.3% in July and 10.07% in June 2021. A recent report shows that due to the lack of career prospects in India, Ph.D. holders have been observed working in call centers, which is a perfect example of underemployment. Also, many individuals are so compelled that they spend their valuable time preparing for the government clerk exam even after they have completed their higher studies, as a result of such considerations, there are concerns regarding underemployment.

Underemployment can Lead to following Effects:

Low per capita income-Low living standards

Per capita income is frequently used to compare the wealth of various populations and to evaluate the average income of a sector. Low GDP, less to zero employment growth, and low demand leads to poor economic growth, which is a major cause for leading the economy into a recession or depression. In a long period of such a situation, it helps to increase the underemployment rate, falls of per capita income, and rises of labor income inequality.

It is easy to comprehend the personal consequences of underemployment. When someone is paid less for their work, their standard of living is typically impacted. A low living standard inhibits a person’s capacity to engage in society, reduces their quality of life, and can have long-term negative effects on a variety of social and economic outcomes. Similarly, underemployment is also the result of a low living standard. Economists have to worry about underemployment because it can create many long-run problems in society.

Frustration and stress at work

Underemployment is a severe psychosocial stressor, and being with an unsatisfactory job is seen as one harmful process uncertainty that leads to stress, low self-esteem, and distorts the person’s and group’s ensemble of social relations, and at the same time, underemployment proliferates. There will be a huge increase in depressive illnesses and suicides. It is certain that there is a strong link between respondents’ family income and the psychological effects of unemployment. Underemployed adolescents have a more unpleasant experience and have a worse quality of life than the control group.

Social unrest

When citizens are dissatisfied with government laws, regulations, and policies, social unrest ensues. Many unforeseen factors might trigger social discontent, including economic recession, underemployment, shattering of people’s self-esteem, financial problems, psychological and physical sickness, and the lack of a stable source of income. In many regions of the world, significant underemployment particularly among young and economic disparities was the underlying cause of social unrest. People were forced to migrate overseas due to a lack of suitable jobs in their native nations. There will be social discontent if no jobs are created. As a consequence, variables such as psychogenic pain, internal conflicts, and tension may emerge, preventing a person from feeling self-realized. It is critical that psychologists and other experts collaborate to address this issue.

Burden on government-fund

Governments are rightfully concerned about the effects of inflation, but underemployment is also a major problem. Aside from the social unrest and discontent that high unemployment may cause among the voters, it can also have a self-perpetuating detrimental influence on companies and the country’s economic health. Government expenditures extend beyond the payment of benefits to the loss of worker output, lowering the gross domestic product (GDP). Unemployment results in increased government payments for unemployment benefits, food stamps, subsidies, and Medical facilities. Simultaneously, state and central governments are no longer collecting the same amounts of income tax as they formerly did. Underemployment forces individuals to borrow money, postpone the costs and repercussions of underemployment, or cut back on other expenses.

Decrease in govt-budget

The government’s tax revenues are reduced when per capita income falls. This lowers the amount spent on government services, including infrastructure investment. The government then searches for other ways to make up the difference. For example, raising gasoline and diesel taxes or borrowing more money. As a result of the increased government debt, private sector investments are anticipated to decline as the private sector utilizes its funds to purchase government bonds. Rating agencies may reduce India’s credit rating if the country’s debt level rises. To compensate for the increased risk of default, markets would demand higher interest rates. This increased interest rate will increase the amount of debt interest payments made by the government, lowering the amount of money available to spend on public projects.

Impacts on Health

Underemployment is widely seen as a negative experience. Underemployment creates stress, which has long-term bodily health impacts and can negatively impact people’s mental health, such as depression, anxiety, and low self-esteem. People experience stress and low self-esteem as a result of losing their daily job routine. The stigma associated with unemployment is a result of financial issues, instability, and diminished future earning potential (which damages health).

It raises the crime rate

According to the Becker (1968) analysis, “A decrease in viable economic prospects will increase the incentive to engage in crime“. 

Unemployment and crime are related to each other. Due to high economic stress, higher socioeconomic disparities, and increased affinity for social vices linked to increased unemployment, all of which can boost criminal motivation. Underemployment is linked to poorer self-esteem, which predicts more depressive symptoms. To summarize, if the unemployment rate rises, people are thought to be more inclined to commit a crime.

Psychological problems

Underemployed people not only lose money but also their physical and emotional health suffers as well. It can have a negative impact on one’s mental health for not being able to make ends meet causes tension and worry, as well as a sense of inadequacy. It can also have a negative impact on normal relationships which affects a person’s personal and professional image.


Underemployment is a cause for worry since it decreases a person’s earning ability, resulting in a poorer quality of living. This can lead to impoverishment in the long run. A person’s underemployment is caused by need rather than choice. Not only does underemployment fail to realize the economic potential of the labor, but it also fails to realize the economic potential of society. It has a detrimental influence on other workers’ economic success. As a result of changing occupations and moving into and out of the labor field, young people are more likely to experience underemployment. Many governmental policies, such as a high minimum wage, substantial unemployment benefits, and a low opportunity cost associated with dismissing workers, might hinder the creation of jobs. Employment is a person’s major source of income and, as a result, a source of economic growth. 

It is also seen as a lagging indicator of the economy. High underemployment indicates a low GDP and labor demand. Finally, underemployment has a large social and national cost. If policies are put in place to guarantee employment this would help them to become active participants in India’s economic development. India’s future lies in a knowledge economy, which may be achieved through equipping the country’s youth with the necessary skills, competencies, and jobs.

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