Disguised unemployment refers toa situation wherein laborers employed in a task cannot utilize their full potential, and their overall productivity remains low. Analysts try to identify this unemployment loophole in the economy to identify poor allocation of resources and reallocate them efficiently to increase total output.
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Disguised unemployment, also known as hidden unemployment, highlights low marginal productivity or inefficiencies in the labor force. It occurs when workers are a part of the labor force but function beneath their actual potential. A high level of hidden unemployment is a grave concern for an economy as it can hurdle the realization of higher GDP or total output.
Table of contents
- Disguised Unemployment Definition
- Disguised Unemployment Explained
- Disguised Unemployment vs Seasonal Unemployment
- Frequently Asked Questions (FAQs)
- Recommended Articles
- Disguised unemployment is when a part of the labor force is working below their potential, or too much labor is doing too few jobs. This scenario results in very low or zero marginal productivity.
- Such an unemployment crisis leads to poor labor force productivity in an economy. As a result, it keeps the total output or GDP very low even when the employment rate is high or stable.
- It is difficult to track hidden unemployment as many nations record only unemployment levels and not labor productivity. Thus, it also affects adequate policy formulation to reduce hidden unemployment.
Disguised Unemployment Explained
Disguised unemployment meaning usually implies developing countries with large populations where the labor supply is in excess but has fewer job opportunities. As a result, the labor force, which includes people working or actively seeking job opportunities, has very low total productivity.
There are manycauses of disguised unemployment, but these underlie a few broad ones. Firstly, skilled laborers do unskilled work requiring low or no skill set. Thus, they cannot utilize their potential skill set at work.
Secondly, low productivity is also because too many laborers are employed to complete a task that requires only a few workers. As a result, some workers’ potential remains idle or irrelevant in the total output. Consequently, their work does not change the total output. For instance,disguised unemployment in agriculture,especially in developing countries, reflects marginal productivity to be zero.
Thirdly,causes of disguised unemploymentinclude the inability of the policymakers to maintain data on the poor or low productivity of laborers. It is because, in an economy, hidden unemployment can be present in any segment of workers. It is because they might have lower productivity or are doing jobs wherein they are not using their full potential. Thus, it is mostly unnoticed or not counted in the unemployment statistics of an economy.
An example of disguised unemployment is the informal sector, where abundant skilled and unskilled laborers are available. Such labor markets include construction, domestic, agricultural workers, or platform and gig workers. However, their true potential remains unrecorded in the unemployment data.
Especially in developing countries, governments cannot maintain such an intrinsic data set on hidden unemployment. The labor market is huge in developing economies, and the governments lack adequate resources to maintain this data. As a result, this problem remains outside adequate policy formulation and implementation, especially in rural areas.
Disguised unemployment refers tounderemployment or partial unemployment. Let us look at a few examples to understand disguised unemployment’s practical implications.
For instance, a person with a walking disability has restricted mobility and may not be able to utilize their full potential. It means that they might look for a place to work which is more friendly and welcoming in terms of facilities and infrastructure for the disabled. These criteria might limit working opportunities for a person, and they might look for more suitable options.
Data collected on persons with a disability in the Current Population Survey (CPS) released by the U.S. Bureau of Labor Statistics found that persons having any disability are more likely to be self-employed than those who are not disabled. The same report also highlighted that in 2021 in the United States,29%of workers with a disability were employed in a part-time job, while part-time workers with no disability made up16%of the labor force.
The concept of disguised unemployment explains various causes of why an economy faces such unemployment. Two such causes are the low capital-to-labor ratio and the poor availability of skilled labor. These are some crucial reasons for high disguised unemployment levels in developing countries of Africa.
In the case ofSouth Africa, the education system does not provide adequate skill sets or industrial training. Thus, the true potential of the labor force remains unrealized, or they cannot gain access to the formal jobs market. As a result, there are poor levels of industrialization in the continent.
Disguised Unemployment vs Seasonal Unemployment
Disguised unemployment refers toexcessive labor employment in a particular activity that requires only a few workers. Thus, the overall labor productivity is very low as too many workers are doing the same job, or too few jobs are available. On the other hand, seasonal unemployment arises when work or jobs are scarce during a period or year. For instance, during certain cropping seasons, labor demand is high in agro-based industries, including food processing and manufacturing.
An example of seasonal unemployment can be winter adventure activities like skiing or snow sledding, attracting many tourists during the peak seasons. Thus, the people working as trainers and tourist guides will be doing part-time jobs for 3-4 months, generating more revenue with higher productivity.
A major difference betweendisguised unemployment and seasonal unemploymentis that of labor productivity and labor demand. While in a situation of disguised or hidden unemployment, laborers might be redundant or inefficient in their productivity. This inefficiency makes the marginal productivity zero and brings no change in the total output. However, during seasonal unemployment, there is a lack of demand for laborers due to seasonal industries being out of work.
Thus, in the case of seasonal unemployment, workers are aware of the period they will be unemployed and contribute by increasing the overall output when the demand is high. On the contrary, even an abundance of labor cannot produce additional output in the case of disguised unemployment.
Frequently Asked Questions (FAQs)
1. What happens in disguised unemployment?
Disguised unemployment arises when a part of the labor force works in roles that are beneath their potential, resulting in low marginal productivity. As a result, they do not bring any change in the total output despite their efforts. It is because the labor supply remains excessive and insufficient capital or training deprives the labor force of improving their productivity.
2. Where will you find the disguised unemployment most?
Hidden unemployment can occur in any segment of the economy where labor has lower productivity due to a job beneath their potential. However, such scenarios occur mostly in developing countries where the labor force has low skill sets and few job and training opportunities. Thus, too many people are doing too few jobs.
3. How to reduce disguised unemployment?
Such hidden unemployment is a grave concern, especially in developing countries, as they have huge populations, low literacy rates, and a lack of resources in terms of capital, infrastructure, or training facilities. Thus, an economy should improve upon these factors to reduce high levels of hidden unemployment.
This article is a guide to What is Disguised Unemployment. Here we explain it with examples and compare it with seasonal unemployment. You can also go through our recommended articles on corporate finance-
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What is meant by disguised unemployment? ›
Disguised unemployment is unemployment that does not affect aggregate economic output. It occurs when productivity is low and too many workers are filling too few jobs. It can refer to any part of the population that is not employed at full capacity.What is an example for disguised unemployment? ›
An example would be a small family farm with ten employees doing the same work. If three or four individuals were to discontinue working, the overall output of the farm would remain unchanged. The three or four individuals can be seen as providing disguised unemployment.What is meant by disguised employment? ›
Disguised employment lends an appearance that is different from the underlying reality, with the intention of nullifying or attenuating the protection afforded to workers by law.Who gave the concept of disguised unemployment? ›
Strictly speaking, the term was first coined by Joan Robinson in 1936, who defined it as “the adoption of inferior jobs by the workers laid off from their normal jobs due to lack of effective demand during depression.”What is the difference between hidden and disguised unemployment? ›
Answer: Open unemployment is a condition in which people do not find jobs to meet their fundamental necessities and are idle. Disguised unemployment is when people appear to be working and yet are forced to work below their ability for the entire day and obtain less.What is the difference between disguised unemployment and hidden unemployment? ›
Distinguish between Open and Disguised Unemployment.
|Open Unemployment||Disguised Unemployment|
|It is clearly visible to others.||This is a hidden type of unemployment.|
Disguised unemployment is mostly found in the agriculture sector in India where, say 10 members of the farmers' family are employed on a small plot when 5 are enough.Where is disguised unemployment found mostly? ›
Disguised unemployment is mostly found in agriculture sector in rural areas in India where 10 members of the farmers family are employed on small plot when 5 are enough. Hence, correct answer is option B.What is an example of disguised unemployment in rural areas? ›
In rural cities, where agriculture is the real source of earning. Such kind of underemployment can often be seen in such lands that require only three or four people to work on such land. Moreover, there are only two additional persons required for any sudden or disguised situation.
False self-employment is a term used to describe a company who are disguising employment of their workers as self-employment. This is usually to evade paying Income tax and National Insurance contributions. Whilst it is seen as an immoral way to run a business it is not deemed as being illegal.
What are the consequences of disguised unemployment? ›
Disguised unemployment cab leads to low productivity. In this unemployment, workers' skills are not utilised for producing any goods or services. Researchers have analysed that disguised unemployment does not contribute to the output of an economy.How do you handle disguised unemployment? ›
If this system is extensively adopted, employment will certainly increase or disguised unemployment will decrease. In this way, the problem of disguised unemployment or under-employment can be solved by raising agricultural productivity or by agricultural development.What are the other names of disguised unemployment? ›
Disguised unemployment is often referred to as underemployment, hidden unemployment, or partial unemployment.What is the conclusion of disguised unemployment? ›
Disguised unemployment characterises a situation when number of persons working on the field is more than the number actually required. As a result, marginal productivity of some workers is zero. In other words, if some workers are removed from the field, the total production would remain intact.Which statement is correct about disguised unemployment? ›
Detailed Solution. The correct answer is Both. Disguised unemployment is a phenomenon wherein more people are employed than actually needed. It is primarily traced to the agricultural and unorganized sectors of India.What is the example of disguised unemployment and seasonal unemployment? ›
Example: When a work that requires only three individuals for its completion is being done by five persons, the two additional persons are disguised unemployed. Example: Agricultural labourers find work only during the busy seasons, i.e., sowing, harvesting, weeding and threshing.
Disguised unemployment is a condition where a person seems to be employed but is working less and the labour effort is divided. Both conditions are very very similar, so it is correct to say that disguised unemployment can also be called underemployment.What are two theories of unemployment? ›
Classical and Keynesian theories of employment and unemployment start from a common framework.What is the different between types of unemployment? ›
The two broadest categories of unemployment are voluntary and involuntary. People who are voluntarily unemployed left their jobs willingly in search of another job. Those who are involuntarily unemployed have been fired or laid off and now must find another job.What are the difference types of unemployment? ›
There are basically four types of unemployment: (1) demand deficient, (2) frictional, (3) structural, and (4) voluntary unemployment.
What type of unemployment is most common? ›
Frictional unemployment also includes people just entering the labor force, such as freshly graduated college students. It is the most common cause of unemployment, and it is always in effect in an economy.
Those who have given up looking, those who are working less than they would like, and those who work at jobs in which their skills are underutilized are not officially counted among the unemployed, though in a sense they are. These groups constitute hidden unemployment.What is the difference between disguised unemployment and seasonal? ›
What is disguised unemployment and seasonal unemployment? Disguised unemployment is when more people are engaged in work than are required. Whereas seasonal unemployment is a situation when there is a lack of proper work for people during certain times of the year.What are the causes of rural and urban disguised unemployment? ›
High population growth leads to surplus labor, especially in the rural areas however, employment in such areas mostly remains seasonal, thus creating disguised unemployment. Poverty results in limited capital in hands of the individual causes inability to purchase land and thus people have access to limited capital.Which of the following is the major reason of disguised unemployment in rural areas? ›
heavy pressure of population along with halfhearted implementation of agrarian reforms.What are the two types of unemployment in rural areas? ›
Disguised unemployment and seasonal unemployment are the two most common types of unemployment found in rural India particularly in the farm sector.Is lying about your job Illegal? ›
Yes, a potential employee may face other consequences for lying on a job application and/or resume. An employee may be terminated immediately upon a finding of false information on a resume and/or in an application.Can you fake proof of employment? ›
There are also companies that provide fake employment verification services, such as falsified information on job duties, work performance, or past work experience. People can also be paid to lie about job history or provide false references. Fake pay stubs and fake employment information can be very believable.Why is disguised unemployment bad? ›
Disguised unemployment occurs when part of the labour force is either left without jobs or operates redundantly, such as the productivity of the workforce is effectively zero. It is unemployment which has no impact on aggregate production.Why disguised employment is not beneficial for the economy? ›
1 Answer. Disguised employment means that more number of people employed in an economic activity than required. If these extra people are removed, there will be no effect on the production.
What is the difference between underemployment and disguised employment unemployment? ›
Regarding the Indian economy, under-employment can be said to be a situation when an individual is not fully employed permanently for the duration of time. Under-employment is also sometimes called disguised unemployment when an individual or group does not have a job or appears to be unemployed.What is disguised unemployment brainly? ›
Disguised unemployment is a situation where people appear to be engaged but actually they are not. If these people are removed, the total productivity will not change. Explore all similar answers. arrow right.Where does disguised unemployment find? ›
Disguised unemployment is mostly found in agriculture sector in rural areas in India where 10 members of the farmers family are employed on small plot when 5 are enough. Hence, correct answer is option B.What is the difference between disguised and seasonal employment? ›
What is disguised unemployment and seasonal unemployment? Disguised unemployment is when more people are engaged in work than are required. Whereas seasonal unemployment is a situation when there is a lack of proper work for people during certain times of the year.What is an example of disguised unemployment brainly? ›
For example: a family of 10 members is working on a unit of agricultural land but the land only requires 5 members. So, the extra 5 members are called disguised unemployed or unemployed.What is seasonal unemployment in economics? ›
Seasonal unemployment occurs when people are unemployed at particular times of the year when demand for labour is lower than usual. Seasonal unemployment refers to a temporary window of time where the number of available employment opportunities decreases.What are the types of unemployment examples? ›
What are the main types of unemployment? There are three main types of unemployment – cyclical, structural and frictional unemployment.