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Disguised Unemployment - Definition, its Causes, Impact and Forms of Disguised Unemployment


An economic concept known as "disguised unemployment" or "hidden unemployment" describes a section of the labour force engaged in duplicate activity with little to no production. In disguised unemployment, people appear to be employed but are actually not making a meaningful contribution to the economy. Disguised unemployment does not affect an economy's aggregate economic output. To put it simply, disguised unemployment occurs when the number of people doing the work (supply) is more than the number of people required to do that particular work (demand).

People who don't work to the best of their ability, perform duties that don't add much to productivity or are unemployed but aren't actively looking for work while having the potential to increase output can all be considered contributing to disguised unemployment.

Disguised unemployment is prevalent in developing nations, which are still growing and have large populations. We call this a labour surplus. Although difficult to spot, disguised unemployment can be identified as the one that typically involves small family enterprises with more employees than necessary. The informal agricultural labour market is another name for it. It differs from seasonally induced unemployment (which can occur due to climatic factors).

The productivity margin is notably very low. Another way to think about disguised unemployment is to say that people are employed but not in a very efficient way. They have skills that are being left on the table, are working jobs that do not fit their skills (possibly due to an inefficiency in the market that fails to recognise their skills), or are working but not as much as they can.

Define Disguised Unemployment

The term "disguised unemployment," often known as "hidden unemployment," refers to the part of the labour force engaged in the same work that produces little to no productivity.

Some examples of Disguised unemployment

The following are some examples of disguised unemployment also viewed as unproductive employment:

  1. People who work part-time but possess the ability and skills necessary to function and be productive at a full-time working level.

  2. People choose jobs with qualifications that are insufficient for their abilities and skills. As an illustration, consider a person with a college or university degree who decides to work as a labour because they cannot find more appropriate employment for their qualifications.

  3. Disguised unemployment also includes those who are ill or disabled yet are capable of performing specific duties. Because although they are frequently excluded from a country's official national unemployment figures, they may be qualified for some jobs.

  4. Those who were pressured into taking early retirement once their employment became redundant.

  5. People work on tasks that don't produce as much as they should.

  6. Those people who are not looking for work. They are typically not seen as being jobless. Many nations solely count job seekers when calculating unemployment rates.

Types of Disguised Employment

  1. Underemployment

People who work part-time jobs occasionally may be considered disguised as unemployed if they want and can work full-time jobs.

  1. Disease and Disabilities

Those who are unwell or are regarded as partially impaired may also be included. Even though they might not be working directly, individuals nevertheless have the potential to contribute to the economy.

  1. They are no longer seeking employment.

Regardless of the reason, when calculating the unemployment rate, a person is frequently no longer deemed unemployed once they cease looking for work.

Consequences of Disguised Unemployment:

The effects of disguised unemployment on the economy and society can be detrimental. 

  • One of the main outcomes is decreased productivity overall

  • It can result in inefficiencies, wastage of resources, and reduced economic growth.

  • Disguised unemployment can also lead to income inequality, as a surplus labour supply can drive down wages and exploit workers

  • Disguised unemployment can have social and psychological repercussions. Workers stuck in low-productivity jobs with little job satisfaction may experience low self-esteem, lack of motivation, and diminished well-being

Addressing Disguised Unemployment:

  • One key strategy for addressing disguised unemployment is to promote economic diversification and modernisation of sectors with high levels of disguised unemployment, such as agriculture. This can involve investments in modern technology, infrastructure, and education and training to enhance productivity and create alternative employment opportunities.

  • Another crucial approach is to invest in education and skill development programs to improve the employability of the workforce. By equipping workers with the necessary skills and education, they can have better access to job opportunities and transition from low-productivity jobs to more productive and fulfilling employment.

  • In addition, fostering an enabling environment for entrepreneurship and small and medium-sized enterprises (SMEs) can also help address disguised unemployment. This will generate more job opportunities.

In conclusion, disguised unemployment is a phenomenon where a large number of people are employed in a sector or industry without making meaningful contributions to productivity.