Underemployment exists, visibly, when persons who are not working full time would be able and willing to do more work than they are actually performing, or, invisibly, when the income or productivity of persons in employment would be raised if they worked under improved conditions of production or transferred to another occupation, account being taken of their occupational skills. In the words of labour economics underemployment is simply the underutilization of labour. Some researchers have distinguished three distinct forms of underemployment: (1) related to fluctuations in economic activities; (2) an overabundance of workers (as in street vendors in developing countries; and (3) hidden underemployment, where a solidarity group continues to employ people rather than laying them off even when there is insufficient work. There is a good deal of underemployment—both urban and, especially, rural—in most countries; but as a general rule the criteria used for detecting underemployment, and especially the average standards of individual output of work, vary from one region to another and pertain to a particular type of society at a particular stage of its development.
In almost all the less developed countries, underemployment and consequent poverty is widespread in both urban and rural areas and is a central employment problem. In rural areas particularly, the majority of small-holders and landless agricultural labourers do not have adequate employment or income for the families dependent on them. India's example is typical and has statistical verification: one-quarter to one-third of the existing labour force in agriculture may be surplus to India's requirements. Pronounced seasonal underemployment also exists: where there are no irrigation facilities, available work is confined to 3-4 months in the year. In the urban sector, about 21% of those gainfully employed work less than 28 hours per week. Japanese Household Economy Surveys yield estimates that approximately one-third to one-half of the agricultural labour force constituted surplus labour. The FAO has estimated that nearly one-third to two-thirds of agricultural workers in various areas of the Middle East, North Africa and Southern Europe are surplus. These and other examples show that one-quarter to two-thirds of workers may be affected in less developed countries depending on location and sector.
Massive underemployment in a poor and stagnating economy means that low incomes are general and that a large proportion of human resources are not being applied to the task of human development.
In a dynamic economy, underemployment may well be preferable as a transitional arrangement to the harsh reality of full-time work and adequate incomes for some and no work and no income for others. In addition, in developing economies, sophisticated distinctions of unemployment and underemployment, in whatever terms, can have little relevance to the facts of poverty and may be used in a rhetoric that seeks to diminish the problem of unemployment.