The impact of underemployment is a widely witnessed phenomenon in the world we live in today. Studies suggested that the causes of underemployment have been attributed to adverse economic conditions. For instance, economic recession that occurs when there is decline in economic activity, it can also be caused by workers supply that is greater than the demand. It reflects the underutilization of the productive capacity of the employed population in relation to an alternative employment situation in which persons are willing and able to engage. Even if exhaustive studies have not been conducted so far to make a sweeping generalization, available works allude to the existence of underemployment as a phenomenon throughout Ethiopia in general and at institute level in particular. Thus the purpose of this thesis was to explore the impacts of underemployment at institutional level. Specifically, the study aimed at identifying the impacts of underemployment on permanent employee satisfaction and institutional development with special reference to Ethiopian Public Health Institute (EPHI). To meet the objective of this study, the researcher employed mixed research approach which combines both quantitative and qualitative research techniques. Purposive sampling technique was applied in order to select target population. Accordingly 278 respondents have participated to fill in the prepared questionnaires. Focus Group Discussion (FGD) and In-depth interviews were also used to solicit the opinion and perception of informants concerning the topic. The study findings convey that underemployment mainly affects the productive work force between 31 and 40 age category followed by 21 up to 30 age groups. Furthermore, it was revealed that underemployment seriously impacts employee satisfaction, carrier and self-esteem. On average around 84% of respondents strongly believed that underemployment has negative impact on employee commitment to work, affect the level of performing task with due diligence and utmost care. Nearly 90% of respondents were less committed to their work owing to the state of underemployment in which they find themselves. Lack of commitment to work in turn led to rampant absenteeism which stood at 76% compared to other indicators. There is moderate association between income status and satisfaction variables. This implies that as an employee receives higher educational training, the level of expectation to earn high or commensurate remuneration/payment will be high, if the opposite is true the level of commitment to deliver a given service with due diligence and utmost care will be affected. This means that underemployment has a negative relationship with employee satisfaction. The study further pointed to the fact that the aggregate socio economic impacts of underemployment may cause higher health related problems, for instance exposing employees to NCDs (Non Communicable Diseases) such as hypertension, diabetics, cancer and etc., which arise from permanent state depression, stress and anger. In general, the current study suggests that unless seriously addressed, underemployment can be an obstacle to overall institutional Performance. Prevailing low employee selfâ€“esteem, low labor productivity, low effectiveness and efficiency and attendant decline in institutional commitment engendered by rampant underemployment could results in low per-capita output, which in its turn hampers the overall development of Ethiopian Public Health Institute. Thus, the researcher proposes institutional overhaul pertaining to employee engagement status to identify gaps and put in place knowledge driven intervention mechanisms that would enhance both employee satisfaction and institutional development.