The Extent and Consequences of Underemployment in Australia

This study was undertaken as part of the Social Policy Research Contract with the Australian Commonwealth Department of Family and Community Services (FaCS). Thanks to David Black and Hong Ha Vu for research assistance and Hielke Buddelmeyer, John Creedy, Edmond Hsu, Guyonne Kalb, Tom Morrison, Yi-Ping Tseng, Jenny Williams and Mark Wooden for helpful comments. The views expressed in this paper are those of the authors and do not represent the views of the Minister for Family and Community Services, FaCS or the Commonwealth Government.Underemployment is generally conceived as excess labour supply associated with employed persons; that is, as a situation where employed persons would like to work more hours at prevailing wage rates. Using information collected by the 2001 Household, Income and Labour Dynamics in Australia (HILDA) survey, this study seeks to investigate the extent of underemployment and its effects on outcomes such as income, welfare dependence and subjective well-being. It is found that over one in six employed persons is underemployed, corresponding to a failure to utilise 5 per cent of hours supplied by employed persons. Underemployment is more frequently associated with part-time employment for females, but for males is more frequently associated with full-time employment. Models estimated of the effects of underemployment on outcomes imply that, while unemployment clearly has greater adverse consequences, underemployment is nonetheless associated with significant detrimental effects on the outcomes examined. Negative effects are found for both part-time employed and full-time employed workers who would prefer to work more hours, but effects are greater for underemployed part-time workers, and are particularly large for part-time workers who would like to work full-time. Indeed, for part-time workers seeking full-time employment, effects attributable to underemployment are, for some outcomes, not far short of those attributable to unemployment