what is underemployment equilibrium 
underemployment equilibrium also referred to as under employment equilibrium or below full employment equilibrium is a condition where employment in an economy persists below full employment and the economy has entered an equilibrium state that sustains a rate of unemployment above what is considered desirable in this state the unemployment rate remains consistently above the natural rate of unemployment or non accelerating inflation rate of unemployment nairu because aggregate supply and aggregate demand are in balance at a point below full potential output an economy that settles into an underemployment equilibrium is how keynesian theory explains the occurrence of a persistent depression in an economy the term underemployment in this sense simply refers to the fact that total employment is under the level of full employment underemployment itself is a distinct term that refers to employed workers who are working fewer hours than they would like or in jobs that require lower skills and often come with lower pay than their education level and experience would indicate underemployment may be included as one component of the general unemployment rate but is otherwise unrelated to the concept of an underemployment equilibrium though these two uses are often mistakenly conflated by those unfamiliar with economics understanding underemployment equilibriuman economy in long run equilibrium is one that is said to be experiencing full employment when an economy is below full employment it is not producing what it would have were it in full employment this state of underemployment means that there is a gap between actual and potential output in the economy in keynesian macroeconomic theory when an economy for whatever reason falls into a recession from a state of full employment it can then get stuck in a persistent situation where it finds a new balance between aggregate supply and aggregate demand with a lower total volume of output the original keynesian explanation for this revolved around the idea that uncertainty and fear in the wake of a recession could induce businesses and investors to reduce their level of investment in favor of holding cash or other liquid assets more or less permanently this reduction in investment would lead to both a reduction in aggregate demand from reduced investment spending on capital goods and a reduction in aggregate supply as the level of employment and general output fell as a result the economy would not bounce back and recover from a temporary recession but could settle into a steady state of elevated unemployment as aggregate demand and aggregate supply reached a new equilibrium at a lower level of output and employment this theory is in contrast to others such as walrasian general equilibrium which suggest that through the adjustment of prices and the actions of entrepreneurs pursuing opportunities the economy will adjust back toward equilibrium at full employment minus some natural rate of unemployment once the the recession and its associated negative real and financial shocks have passed keynes disputed these theories and later keynesian economists came up with further explanations as to why markets might not adjust back toward full employment after a recession such as the idea of price stickiness advocates of keynesian economics suggest that a solution to an underemployment equilibrium state is a fiscal policy of deficit spending and to a lesser extent monetary policy to stimulate the economy underemployment vs underemployment equilibriumthe term underemployment refers to a type of labor under utilization where a worker is employed but not producing at their full potential or working as much as they would like to underemployed workers may be working in part time jobs when they would prefer to work full time or may be working in low skilled low productivity jobs while they posses more advanced skills educational credentials or experience broad measures of unemployment reported by government statistical agencies may account for underemployment in addition to joblessness underemployment may have many of the same causes as unemployment but often also results from an oversupply of higher education relative to job opportunities or a mismatch of skills and education to available jobs beyond its contribution to the total rate of labor under utilization however underemployment itself is not related to the concept of an underemployment equilibrium and the two terms should not be confused with each other 