Changes In Industries’ Sizes Don’t Account for Drop in Post-COVID-19 Recession Underemployment Rate, Cleveland Fed Researchers Find

In this Economic Commentary, Cleveland Fed researchers Daniela Dean Avila and Kurt G. Lunsford study the underemployment rate – the percentage of employed people who are working part-time but prefer to be working full-time -- during recent business cycles and examine whether changes in industry composition account for changes in the rate.

The underemployment rate has fallen sharply since mid-2020 and is now consistent with its pre-2008 levels. The large drop in this metric in the aftermath of the COVID-19 recession suggests that the labor market may be tighter than indicated by the unemployment rate alone, according to the researchers.

In contrast to earlier research, they find that changes in industry composition did not account for the increase in the underemployment rate following the 2008-2009 Great Recession. Neither did such changes account for the decrease in the underemployment rate following the 2020 COVID-19 recession.

“Because of this finding, we would not expect the underemployment rate to revert back to its pre-COVID-19 levels if the industry composition reverts back to its pre-COVID-19 structure,” say the researchers.

Read more: Underemployment Following the Great Recession and the COVID-19 Recession

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892