Disguised Unemployment

A portion of the labor force that is involved in redundant work with very minimal to no productivity

What is Disguised Unemployment?

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

 

Disguised Unemployment

 

An example an 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 facing disguised unemployment.

The example above is well-suited for rural areas. In more modernized settings or urban areas, an example can be seen in convenience shops or other small businesses with more staff than needed to perform certain tasks.

 

Summary

  • Disguised unemployment, or hidden unemployment, is an economic term used to refer to a portion of the labor force that is involved in redundant work with very minimal to no productivity.
  • 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 can be seen as contributors to the disguised unemployment.
  • Disguised unemployment is very common in third-world countries, which are still developing and with vast population numbers, thereby experiencing what is known as a labor surplus.

 

Understanding Disguised Unemployment

Disguised unemployment is very common in third-world countries, which are still developing and with vast population numbers, thereby experiencing what is known as a labor surplus. Because disguised unemployment is so challenging to unmask, it can be categorized by the following:

  1. It is normally connected to small family businesses with more employees than required or self-employed individuals. They can also be known as informal and/or the agricultural labor market.
  2. Marginal productivity is noticeably low.
  3. It is differentiated from seasonal unemployment (which can occur due to climatic factors).
  4. It is challenging to personally identify which portion of the labor force is disguisedly unemployed.

 

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 summing of the 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 can be seen as contributors to 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 do not fit or complement their skillset.

 

Inclusions of Disguised Unemployment

Since disguised unemployment can be seen as a lack of productive employment, included 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 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 Certified 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

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