Disguised Unemployment

What is Disguised Unemployment?

Disguised unemployment, or hidden unemployment, is an economic term used to refer to a portion of the labor force involved in redundant work with very minimal to no productivity. Hidden unemployment does not impact the aggregate output of an economy.

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.

The example above is well-suited for rural areas. In urban areas, an example would be convenience shops or other small businesses with more staff than needed to perform operational tasks.

Understanding Disguised Unemployment

Disguised unemployment is very common in third world countries, which are still developing and with large populations. This is known as a labor surplus. Disguised unemployment is challenging to identify; however, it can be characterized by the following:

1. It is normally connected to small family businesses with more employees than required or self-employed individuals. It is also known as the informal agricultural labor market.
2. Marginal productivity is noticeably low.
3. It is differentiated from seasonal unemployment (which can occur due to climatic factors).

In addition, disguised unemployment can be seen as the portion of a population that is not efficiently employed and is also not included in the total employed or unemployed numbers. Individuals who do not work to their full capacity and capabilities, those who perform work tasks that do not provide much productivity value, or individuals who are unemployed and are not actively seeking working opportunities despite possessing the capacity to enhance productivity are included in disguised unemployment.

Moreover, one way of looking at disguised unemployment can be a consideration that people are not efficiently employed. Such individuals could possess significant strengths and skills that are being missed while performing tasks that are beneath their skillset.

Inclusions of Disguised Unemployment

Since disguised unemployment can be seen as unproductive employment, included in it are:

1. Individuals who are employed on a part-time basis but with the capabilities and skills to perform on a full-time employment level and be productive.
2. Individuals who accept jobs with requirements that fall below their skills and abilities. An example can be an individual with a college or university degree taking up a job as a teller due to an inability to find a job more fitting for their qualifications.
3. Individuals with illness or disability but who can perform certain tasks also fall under disguised unemployment. It is because they may be able to work certain jobs but are typically not included in the national unemployment statistics of a country.
4. Individuals whose jobs became redundant and were persuaded into early retirement.
5. Individuals performing job tasks that are unproductive in terms of overall output.
6. Individuals who are not in search of employment. They are generally not considered to be unemployed. Several countries only include job seekers in their unemployment statistics.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

• Agribusiness
• Economic Indicators
• Structural Unemployment
• Labor Force KPIs
• See all economics resources