Underemployment is not only a problem because underemployed individuals earn lower wages compared to their peers. Underemployment also has long-term consequences on future job prospects of these individuals. In other words, underemployment is individually persistent. This leads to a gradual deterioration of skills and limited skill development. It also negatively affects well-being, especially when individuals feel discouraged about their career prospects.

Looking at it from a policy perspective, it becomes clear that the short-term advantages of quickly entering the workforce can actually lead to long-term disadvantages of being stuck in a job that doesn’t align with one’s qualifications. It is important to note that populations that are more disadvantaged are more likely to experience underemployment and face higher penalties from it. For instance, overqualified women face larger wage penalties compared to overqualified men. This highlights that labour market policies (and possibly educational policies) should strive for achieving a better match between qualifications and job requirements.

While unemployment is widely recognized as detrimental to one’s career prospects, well-being, and health, underemployment is sometimes considered as a solution to unemployment. The question is whether this is a trade-off we should be willing to make? Individuals who take jobs for which they are overeducated indeed remain unemployed for shorter period of time, however in many cases workers may prefer unemployment to underemployment considering that underemployment has a long-term negative consequences for worker’s career developments. Research shows that individuals who do take jobs for which they are overqualified have difficulties breaking out of these jobs. This means that these jobs are not a stepping stone into adequate employment, and these findings replicate over individuals in different stages of life and across different skill groups.