Some major Western economies are close to full employment, but only in comparison to their official unemployment rate. Relying on that benchmark alone is a mistake: Since the global financial crisis, underemployment has become the new unemployment.
In a recent paper, David Bell and David Blanchflower singled out underemployment as a reason why wages in the U.S. and Europe are growing slower than they did before the global financial crisis, despite unemployment levels that are close to historic lows. In some economies with lax labor market regulation — the U.K. and the Netherlands, for example — more people are on precarious part-time contracts than out of work. That could allow politicians to use just the headline unemployment number without going into details about the quality of the jobs people manage to hold down.
In recent months, leaders including President Donald Trump, U.K. Prime Minister Theresa May and German Chancellor Angela Merkel have bragged about record high employment. The veracity of these boasts varies, however. As different economies recovered from the global financial crisis, some relaxed labor regulations, creating more precarious jobs to drive down the headline jobless numbers and get more people off the dole. Spain, which had to deal with a joblessness explosion after the crisis, fought it by weakening worker protections and creating precarious jobs. It started out with an underemployment level of 3.5 percent in 2008; that doubled by 2014, and has barely come down since. In the U.K., underemployment peaked in 2012 and 2013, and it’s still not back to the pre-crisis level. In the U.S., involuntary part-time employment rocketed in 2008 and 2009 and then started shrinking, but there, too, the pre-crisis level hasn’t been reached yet.