Disguised Unemployment

Published Oct 25, 2023

Definition of Disguised Unemployment

Disguised unemployment refers to a situation where individuals appear to be employed, but their contribution to the productive output of an economy is minimal or nonexistent. In other words, it is a form of unemployment where people are technically employed but are not actually productive or necessary for the functioning of the economy.

Example

One example of disguised unemployment is seen in a scenario where a large number of people are employed in the agricultural sector, but the sector is actually overstaffed. In many developing countries, agriculture continues to be a major employer, but due to limited technological advancements and land constraints, there are often more workers than necessary.

For instance, imagine a small village where ten people are involved in cultivating a plot of land. However, the land is not large enough to require the labor of all ten individuals. In this case, if two or three people were removed from the workforce, the level of production would remain the same. This signifies that the additional workers are disguisedly unemployed. Their presence does not contribute to any increase in output, and their removal would not affect productivity.

Furthermore, disguised unemployment can also occur in urban areas where informal and low-paying jobs are prevalent. Individuals might be engaged in activities that do not generate substantial income or increase the productivity of the economy.

Why Disguised Unemployment Matters

Disguised unemployment is a concern for any economy, as it indicates the inefficient allocation of resources. When individuals are employed but not productive, it leads to wastage of human capital and reduces overall economic output. Moreover, disguised unemployment can negatively impact living standards, as individuals in such positions may face low wages and lack job security. Recognizing and addressing disguised unemployment is crucial for governments and policymakers to create opportunities for productive employment, enhance economic efficiency, and improve the welfare of their citizens.