Underrum

Underrum is a term used in macroeconomic theory to denote the portion of an economy's potential output that remains unrealized due to persistent structural frictions and underutilization of resources. It is described as distinct from cyclical recession or temporary demand shortfalls, highlighting long-lasting inefficiencies that prevent the economy from operating at its estimated potential.

In concept, underrum encompasses factors such as skill mismatches, long-term capital misallocation, credit constraints, regulatory barriers, and information asymmetries. These frictions can inhibit the reallocation of resources or the full utilization of productive capacity, so that even when aggregate demand strengthens, some capacity remains idle or suboptimally used.

Measurement and use vary by model. In theoretical frameworks, underrum can be represented as a share of potential output or as a rate at which potential output is effectively reduced by structural frictions. It is often estimated indirectly through structural econometric methods, growth accounting with persistence terms, or dialogue with the broader literature on hysteresis and long-run output gaps.

Etymology and status: the term underrum is not part of standard macroeconomic vocabulary and appears only in a small subset of theoretical discussions. Definitions and interpretations differ across authors, and it is not universally adopted as a formal concept. It is generally described as a descriptive tool to discuss persistent, non-cyclical impediments to full capacity use.

See also: potential output, output gap, hysteresis, structural unemployment.