underutilisation

Underutilisation refers to the underuse of available resources in an economy or organization relative to their potential or planned capacity. It can involve labor, capital, land, or technology that is available but not being employed to its full extent.

Capacity utilisation is a common economic concept used to gauge underutilisation. It measures actual output as a share of potential output if all capacity were used at normal operating rates. A low capacity utilisation rate signals idle resources, lower efficiency, and potential inflationary or growth gaps if demand strengthens.

Labor underutilisation encompasses several conditions: unemployment, underemployment (such as part-time workers who want full-time work), and discouraged workers who have stopped searching for jobs. These forms reflect slack in the labor market and can suppress wages and productivity.

Causes of underutilisation include deficient demand, structural shifts in the economy, misallocation of capital, regulatory or financing barriers, skill mismatches, aging or obsolete capital stock, and inefficiencies in production or management.

Implications include reduced productivity growth, higher unit costs, suppressed investment, and broader social effects such as higher unemployment and lower living standards. Underutilisation can also indicate inefficiencies in public resources or infrastructure when facilities and funds sit underused.

Measurement and policy responses: Economies monitor capacity utilisation and output gaps to assess slack and potential inflationary pressure. Policy responses may include demand stimulation, infrastructure investment, training and education to close skill gaps, and measures to improve efficiency and competitiveness. In organizations, optimizing resource planning and process improvements aims to reduce underutilisation and boost productivity.