Insensitivity of Underemployment to Business Cycles in the United States, 1994-2004

Nelson Lim, RAND
Sara Hajiamiri, RAND

In this paper, we document the association between economic recession and underemployment rates--as in the "labor utilization framework" (LUF), see, e.g. Clogg, Eliason and Leicht, 2001--in the United States between 1994 and 2004. We find that the 2001 U.S. economic recession was associated with a large, sudden increase in people who reported that they were voluntarily taking part-time work and with small, gradual increases in the prevalence of unemployment and involuntary part-time workers. However, neither the 1990s economic boom nor the 2001 economic recession was associated with other LUF underemployment measures, including discouraged workers and underemployment by income and by education. The same patterns holds for all demographic groups by gender, race and ethnicity, age, education, and marital status. We conclude that underemployment is insensitive to business cycles in the United States between 1994 and 2004, and discuss the implications of our findings for measuring underemployment.