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Differences between unemployment and underemployment

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Discuss the differences between unemployment and underemployment and give examples of each. Which do you think is a more serious "problem" for the economy? How might underemployment be addressed through government policy?

Discussion Checklist:

-What are the key tools of fiscal policy and monetary policy
-Why might each of these policies not be effective in reducing high levels of unemployment
-Why might changes in unemployment be a lagging indicator in an economic recovery
-Discuss the possibility that monetary and fiscal policy actions might actually destabilize the economy and reductions in unemployment

What factors might cause the marginal propensity to consume to change? If the MPC increases from 0.50 to 0.75, what happens to consumption and ultimately GDP when household income rises? What do you think happened to MPC after the last recession? Explain.

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Solution Preview

Unemployment occurs when workers are sitting at home, actively looking for work. Underemployment, meanwhile, occurs when workers with skills are forced to accept a job that they are overqualified for, i.e. a doctor driving a cab. While both represent serious problems, 10% unemployment is more concerning than 10% underemployment. While skilled workers unable to find meaningful work are concerning, skilled workers unable to find any work is much more concerning. Governments can tackle unemployment ...

Solution Summary

The expert discusses the differences between unemployment and underemployment. The key tools of fiscal policy and monetary policy.