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Disguised Unemployment: Definition and Different Types

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Investopedia / Jake Shi

What Is Disguised Unemployment?

Disguised unemployment exists when part of the labor force is either left without work or is working in a redundant manner such that worker productivity is essentially zero. It is unemployment that does not affect aggregate output. An economy demonstrates disguised unemployment when productivity is low and too many workers are filling too few jobs.

Key Takeaways

• 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.

Understanding Disguised Unemployment

Disguised unemployment exists frequently in developing countries whose large populations create a surplus in the labor force. It can be characterized by low productivity and frequently accompanies informal labor markets and agricultural labor markets, which can absorb substantial quantities of labor.

Disguised, or hidden, unemployment can refer to any segment of the population not employed at full capacity, but it is often not counted in official unemployment statistics within the national economy. This can include those working well below their capabilities, those whose positions provide little overall value in terms of productivity, or any group that is not currently looking for work but is able to perform work of value.

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 recognize their skills), or are working but not as much as they would like.

There are varying types of disguised unemployment, including people working jobs beneath their skill set, unutilized workers who are ill or disabled but still able to be productive, and job seekers who are demoralized by their inability to find work and so stop looking for it.

Types of Disguised Unemployment

Underemployment.

In certain circumstances people doing part-time work may qualify as disguised unemployment if they desire to obtain and are capable of performing full-time work. It also includes those accepting employment well below their skill set. In these cases disguised unemployment may also be referred to as “underemployment,” covering those who are working in some capacity but not at their full capacity.

For example, a person with a master of business administration (MBA) accepting a full-time cashier position due to the inability to find work in their field may be considered underemployed, as the person is working below their skill set. Additionally, a person working part time in their field who wants to work full time may also qualify as underemployed.

Illness and Disability

Another group that may be included is those who are ill or considered partially disabled. While they may not be actively working, they may be capable of being productive within the economy. This form of disguised unemployment is temporary in the case of illness and categorized when someone is receiving disability assistance. This means the person is often not considered part of the unemployment statistics for a nation.

No Longer Looking for Work

Once a person stops looking for work, regardless of the reason, they are often no longer considered unemployed when it comes to calculating the unemployment rate . Many nations require a person to be actively seeking employment to be counted as unemployed. If a person gives up looking for employment, whether on a short- or long-term basis, they are no longer counted until resuming the pursuit of employment options. This can count as disguised unemployment when the person wants to find work but has stopped looking due to being demoralized by a long search.

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What is disguised unemployment?

Last updated 20 Jul 2023

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Disguised unemployment refers to a situation in which a larger number of people are employed in a particular sector or occupation than is actually necessary for the efficient functioning of that sector. It occurs when the productivity of additional workers is nearly zero or negligible. In other words, these surplus workers are not contributing much to the overall output or productivity of the sector

The term "disguised" unemployment implies that the unemployment is not immediately apparent because these surplus workers appear to be engaged in some form of employment. However, their actual contribution to the productive output of the industry is minimal, and they could be better utilized in other sectors where their skills are in demand.

This phenomenon is often observed in agriculture and certain other labour-intensive industries, especially in developing countries. In such cases, too many people may be employed on a farm or in a particular activity, leading to lower overall productivity and income per worker. Disguised unemployment can hamper economic growth and development by inefficiently allocating human resources and preventing workers from moving to more productive sectors where their skills can be put to better use.

Efforts to reduce disguised unemployment may involve promoting skill development, encouraging labour mobility, and creating opportunities in more productive sectors of the economy. By doing so, the overall productivity and efficiency of the economy can be enhanced, leading to higher economic growth and better standards of living for the population.

• Disguised unemployment
• Hidden Unemployment
• Unemployment
• Hysteresis unemployment
• Unemployment rate

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Disguised Unemployment

AKA hidden unemployment, occurs when the productivity of additional employees is negligible or zero.

What Is Disguised Unemployment?

Understanding disguised unemployment.

• Types Of Disguised Unemployment

Disguised Unemployment Example

Factors contributing to disguised unemployment.

• Measuring Disguised Unemployment

Disguised Unemployment Prevention

Disguised unemployment, also known as hidden unemployment, occurs when the productivity of additional employees is negligible or zero. This level of productivity implies that a larger number of employees are engaged in activities that aren't producing desired results.

This phenomenon explains the additional employment at workspaces for people engaged in activities that are no longer deemed profitable or productive.

Hidden employment has no effect on aggregate economic output and can occur when there are many workers for less productivity, and more employees filling work with fewer positions.

Within this broad bracket of unemployed people are also people in the workforce who have a job but are not actively contributing to production.

It is called so because they appear to have jobs but do not contribute to the aggregate economic output. Such individuals have very low productivity and may even hamper the company's production. It often occurs when too many people work on the same project.

Another way of looking at disguised unemployment is to consider individuals who are working jobs that are well below their level of skill. 

These individuals are part of the human capital that is not being used efficiently. As a result, they cannot contribute to economic production at their fullest potential.

Key Takeaways

• AKA hidden unemployment, occurs when additional employees contribute negligible or zero productivity. This situation arises when there are more workers than required for a particular task, leading to inefficient allocation of labor resources.
• It stems from various factors such as surplus labor, skill-job mismatch, and technological advancements.
• Addressing disguised unemployment requires comprehensive policy measures aimed at creating meaningful job opportunities, enhancing workforce skills, and promoting economic growth.
• Hidden unemployment can be prevented through investing in sectors like agriculture, also improving labor market efficiency and promoting economic growth through regulatory reforms and investment incentives.

Disguised unemployment is also characterized by a part of the population that is not employed at full capacity. This characterization also includes jobs with lower productivity or any category of workforce that is ready to work and capable but not currently searching for a job.

Disguised employment is most commonly found in rural areas where multiple, more than required farmers work on agricultural land, which happens to be the main source of income in these areas.

In urban areas, the same situation can be observed, but this time, instead of farmers, we see plumbers, painters, and electricians who work day in and day out to find regular employment. Not only are they unable to find regular work, but they also work less than their true potential.

Disguised unemployment is most common in developing nations, where there are many individuals ready to work but a lack of appropriate opportunities. 

Hidden unemployment can also be identified by looking for low productivity. The pattern also includes informal labor markets, farmers' markets, and the ability to consume a large number of laborers.

Types of Disguised Unemployment

There are different types of unemployment within disguised unemployment. This section briefly discusses three subtypes of this form of unemployment. But first, let us examine the following types of disguised unemployment.

• Underemployment

Underemployment occurs when individuals with a high skill set accept jobs well below their skill level. As a result, their true potential is not fully utilized in this situation. 

In such cases, "hidden employment" can also be classified as underemployment as the individual is working at some capacity that is not sufficient. If the marginal product of each employee is negligible, they are likely underemployed.

It also applies to individuals who are working part-time but want to do a full-time job. They have the skills needed for a full-time job but have not yet been hired.

Sickness Or Disability

Individuals who are sick or have special needs but can contribute to the economy may be unemployed as they seek assistance for their disabilities. However, this unemployment is usually only temporary.

For example, this could be the case if a person is forced to leave work to undergo treatment but can return to work once the treatment is complete.

Similarly, a special needs person might have to leave work for a short time to seek medical help.

Such individuals are said to be disguisedly unemployed since they are often not included in the nation's unemployment statistics.

Not Seeking Work

If an individual stops looking for work, regardless of the reason, they are often not measured in a nation's unemployment statistics. Hence, they are also considered to be disguisedly unemployed.

For an individual to be seen as "unemployed," they should be actively looking for work at the time. Individuals who do  not want  to work are only disguisedly unemployed.

For instance, someone working a nine-to-five but decides, at the age of 40, to quit their job because they have enough money to financially support themselves and their family.

They would not be considered unemployed because they are not seeking out work. Instead, this person has chosen of their own free will to stop working and retire early.

To better understand the concept, let us consider the following examples.

Suppose Martín is a university graduate with a degree in engineering. However, due to a loose labor market, he cannot find a suitable job that requires his skill set.

Instead, Martín works as a full-time Uber driver, picking up and dropping off passengers at different locations within his neighborhood. Although Martín is working and generating an income, he is not utilizing his full potential to add to the economy. In other words, he is disguisedly unemployed.

Now, let us look at another example. 

Suppose Paula is a factory worker. She works alongside nine other employees who package biscuits at a biscuit factory. The overall output would remain the same if the factory laid off five employees. 

Paula and her colleagues are unemployed in this case as they do not individually contribute to the biscuit factory's production.

Although these are two very different examples, both scenarios described above can be classified as situations where unemployment is disguised.

Martín and Paula appear to be working, but neither improves the aggregate economic output by utilizing their full skill set.

So far, we have discussed disguised unemployment. But what causes this phenomenon to occur? Let's examine.

As you may have guessed, the leading cause of unemployment is too few job vacancies and many individuals looking for work. However, there are reasons why this situation may occur in the first place.

Some of the factors are discussed below.

Excess Population

If the country's population grows rapidly, it will have many excess workers. As more individuals are born and reach working age, more people are actively looking for employment.

However, job openings often do not grow at the same rate as the population. Ultimately, the number of people seeking a job increases while the number of positions to be filled relatively decreases.

Since job openings are comparatively few, many workers do not get the desired job. Instead, many individuals are forced to work underpaying jobs that do not match their full potential.

Lack Of Adequate Education, Training, And Infrastructure

The mismatch between the skills required and the jobs available in the market may cause individuals to stay unemployed or settle for jobs that don't match their education and skills. Apart from this, changing trends and skills requirements may cause the same.

Disguised unemployment can also occur for the reason of lack of proper roads, electricity, transport, and facilities to carry out employment.

Technological Advancement

Globalization encourages countries and businesses to share innovations as the world becomes more integrated. This act leads to the development of new technologies. Often, these technologies are far more efficient at certain jobs than traditional human labor.

For instance, it is much quicker and cheaper, in the long term, to employ a machine to manufacture handbags than it is to pay workers to do the same task. 

Although there may be some difference in quality, the cost advantage is typically enough to draw consumers to a cheaper product. This causes the demand for certain types of labor to fall, and workers are left looking for jobs in fields that do not match their expertise.

Occupational Immobility Or Lack Of Awareness

If an individual cannot travel to another city or country to look for better job opportunities, they are forced to take a less preferred job in their home country.

Similarly, individuals who are unaware of the job opportunities available elsewhere will pursue lower-paying jobs. These low-paying jobs can also contribute to hidden unemployment, which results from individuals taking up jobs for whom they are overqualified. 

This overqualification for the job can make the workforce underutilized.

Social And Political Factors

Dissatisfied youth and workforce from the government and their contributions towards unemployment may also result in a contribution towards hidden unemployment.

The lack of proper measures taken by the government to address the issue of unemployment will also lead to dissatisfied senior workers in the economy because proper measures are not taken to protect their employment.

This will lead to senior workers being unemployed or working at capacity less than expected by doing part-time jobs.

Low Capital Investment

A lack of capital investment in industries is likely to contribute to hidden unemployment. Capital investments are long-term investments in the economy that promote growth in various sectors.

Low investments in sectors can hinder growth. This forces employees to keep working in areas that will not bring any productive change to the economy.

Measuring disguised unemployment

The  Current Population Survey  (CPS), conducted by the  U.S. Bureau of Labor Statistics (BLS)  and the U.S. Census Bureau , is useful for measuring disguised unemployment.

The survey asks about 60,000 families questions about the employment and unemployment status of household members 16 years of age and older. 

Households must also report their earnings, the number of hours spent at work, etc., to better inform authorities of their status.

The various unemployment rates that the responses to these questions influence the BLS reports. A U-6 unemployment rate is also a useful tool for measuring  real unemployment  in the economy. It captures individuals working part-time, unemployed, or just marginally attached to the workforce.

Workers who want to work full-time but are only employed part-time are included in this unemployment indicator.

The only major drawback of this measure is that it does not account for full-time employees who work in positions that do not fully utilize their potential or that do not make use of their entire skill set.

There are several ways through which governments can overcome the issue of disguised unemployment. The following section discusses a few of them:

• Apart from this, the provision of unemployment benefits generates more demand for necessities like food and clothing since all benefits received must be spent.
• Promoting Education And Skills Development: Initiatives to provide education and skills development programs to enhance the workforce's skillset and the ability to perform high-value jobs. Government-promoting internships, part-time training programs, and other boot camps can prevent hidden unemployment.
• The agricultural sector provides ample employment opportunities. Hence, investing in this sector to create more jobs may significantly reduce unemployment in the country.
• Job fairs, recruitment agencies, and labor market intermediaries can enable this.
• Tax incentives, investment guarantees, and an improved business environment can contribute to the same.

Apart from these factors, if the economy is supported by encouraging labor market mobility, transparency, and flexibility, it can work wonders in terms of preventing hidden unemployment.

Disguised unemployment, sometimes referred to as hidden unemployment, happens when the productivity of extra workers is very low or nonexistent. This productivity level suggests that a greater proportion of workers are involved in non-productive activities.

Disguised unemployment refers to an individual who can work or is employed but is not improving production or is only partially utilized for available time or skills.

This type of unemployment is most commonly found in third-world or developing nations, where a large portion of the population is ready to work but cannot find appropriate job opportunities that meet the educational and skill requirements.

There are three main types of disguised unemployment:

• Unemployment due to sickness or disability, and
• Unemployment due to not actively looking for work.

Some of the possible ways that cause hidden unemployment include:

• High population growth rate
• Labor-intensive economy
• Technological advancements
• Occupational immobility, and
• Lack of awareness about job opportunities

The Current Population Survey and U-6 unemployment rate are used to measure this type of unemployment.

Governments can utilize public funds and monetary policy to increase employment in the nation. In addition, unemployment benefits can also help stimulate the economy and generate more jobs.

In conclusion, understanding and measuring disguised unemployment is a complex economic concept that requires a comprehensive approach. The calculation takes various elements into account.

The required skills and capabilities, the availability of job opportunities, and productive workers are some of the most important elements in calculating hidden unemployment.

Policy and decision-makers employ a combination of different methods and approaches to gain a better understanding of the extent and impact of disguised unemployment. Then decisions are taken after the strategy is formed by keeping these variables in the picture.

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Cyclical Unemployment

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Since business has picked up with the COVID vaccine rollout, record numbers of employers have struggled to find workers. In August, half of U.S. small business owners had jobs they wanted to fill, a historic high, according to a trade group survey ; 91 percent said there were few or no qualified applicants. The reasons for this labor-employment mismatch are complex and not fully understood, economists say.

  A new report says there is a “hidden” workforce of 27 million people in the U.S. who would gladly, and capably, fill those jobs — if given the chance. But because of hiring practices, the applications of this diverse group usually go straight to the rejection pile.

Co-author Joseph B. Fuller ’79, M.B.A. ’81, co-chair of the Managing the Future of Work project at Harvard Business School , says corporate leaders could solve many of their labor problems if they gave these workers a closer look, and gain a real advantage over competitors unwilling to do so, and improve workplace diversity. Interview has been edited for clarity and length.

Joseph B. Fuller

GAZETTE: What was the impetus for this report?

FULLER:  The vast majority of academic research on labor markets is from the supply side. It doesn’t look at the employer as an animated object that makes decisions based on a rationale that may or may not be sound. Before I was a professor at HBS, I was in industry, and it always struck me that there were these anomalies. Communities with lots of people looking for work and employers bemoaning the lack of candidates, but employers essentially acting as if a [qualified] candidate is supposed to present her or himself [for] the job they have on offer for the terms they’re offering. And if that didn’t happen, there was something quote “wrong.” They weren’t very active in addressing it themselves. Why was that?

The second thing is, if you look at the government data, it’s not actionable. [It doesn’t delineate] “this is how many long-term unemployed there are; this is how many discouraged workers there are; this is how many underemployed workers there are.” Huge numbers of people, but very little nuance in explaining why. So, I wanted to understand what’s behind these numbers.

GAZETTE: Many screened out of the application process early are people with felony convictions and people without a college degree. Who else makes up this “hidden” workforce?

FULLER: Veterans tend to be hidden because their skills, and the way those skills are described, don’t match with the skill descriptions employers are seeking. If someone’s looking for a salesperson, they’re looking for sales experience. So, they’re looking for those kinds of keywords in your résumé description of yourself. If they’re not there, you don’t get considered.

People who’ve had gaps in their work history: Half the companies in the United States have a filter to exclude applicants who have not been employed in the last six months or if there’s a gap in their work history of more than six months.

The biggest category is called NEET: Not in Employment, Education or Training. That’s a person who doesn’t have a job, doesn’t have a degree, is not in school. [Automated screening systems don’t] know what to do with them.

A big part of this research effort is to take that number [of 27 million] and break it down into identifiable chunks and give both employers and policymakers some insight into what does it take to get this part of the population into the workforce.

GAZETTE: About 99 percent of Fortune 500 companies use artificial intelligence tracking systems to screen applicants and then winnow them down to a manageable number before starting the interview process. Those systems determine who makes the cut based on specific parameters or keywords. Why such an all or nothing approach?

“The biggest category is called NEET: Not in Employment, Education or Training. That’s a person who doesn’t have a job, doesn’t have a degree, is not in school. [Automated screening systems don’t] know what to do with them.”

FULLER: We basically have a circular logic that’s taken hold. My mandate as a recruiter is to get qualified candidates as quickly as possible, as cheaply as possible. A tiny, tiny minority of jobs are searched for outside a 25-mile radius of where the job is. But [recruiters] want [to be able] to say, “We looked broadly; we really searched for all the candidates available; we looked for diverse candidates; and this is the person that best fits the job description.”

Now, all sorts of things happen inside that cycle. The first, as the report points out, is that the creation of job descriptions and their curation over time is very haphazard. Most job descriptions are not updated that often; they’re updated by recruiters with [little] input from the [relevant] supervisors or from people who are a success in the job right now.

So, what [recruiters] try to do is toggle the filters used to screen résumés, whether it’s academic attainment or years of experience or keywords or previous experiences, that [they] think are indicative that someone is qualified. When [they] get the application, they’re looking for confirmation of harder variables — yes, she graduated with a B.A. from Brandeis — and looking in the self-description for keyword capabilities that fit with the job description.

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GAZETTE: Are businesses aware that these choices are locking out many people who may be right for a job?

FULLER: They understand that in trying to make the process efficient in setting rules, there’s some collateral damage. If I find a good person that the supervisor’s enthusiastic about, [and do it] fast, that’s my job. But they don’t understand that the effort to make the process very efficient is creating a significant amount of the shortage that they complain about. Most of them haven’t thought through the logic of the way they evaluate recruiters. Most are rewarded and recognized for minimizing the cost of hiring somebody and getting them fast. They are not evaluated on whether that hire becomes productive quickly, or stays with the company, [or] gets promoted.

A lot of people may say, “AI is biased.” Well, so was the old system. We’re not saying AI is awful and ought to be eradicated. We’re just saying it’s got some perverse effects and mediocre thinking. Why don’t we get some intelligent [AI], which is more nuanced than just these 0/1 [basic computer binary] outcomes?

GAZETTE: There’s a perception that hiring these workers is risky, that they won’t thrive or won’t add much value to a company. You found that’s untrue.

FULLER: Particularly in the U.S., companies that didn’t have experience working with specific populations of hidden workers have lots of negative assumptions: It’s going to be expensive; it’s going to hurt profitability; it’s going to be hard to onboard them; they can’t be productive. What we found is companies that have made some commitment to this find those concerns to be moot. In fact, once they’ve gotten a program in place, [they] find that hidden workers are more productive, are more likely to stay, are positive contributors economically. Which is a key point: This is not feel-good capitalism; this is hard-nosed capitalism. But also, very often, [it can] have a positive impact on the broader workforce.

GAZETTE: Some firms do pursue these workers, often through corporate good citizenry efforts to promote inclusivity. But you say there’s a more effective approach they ought to follow. Can you explain?

FULLER: As long as this is defined as “a way to give back,” it’s going to be limited. If it’s defined as a normal-course-of-business activity, where we recruit and develop talent from this worker population with a well-thought-out, well-designed, clear-eyed program, just the way we’d hire engineers from MIT, now you’re in the money. Now you’re going to have an extensive commitment to this. Companies that get good at this and clever about it and run it professionally, will outperform companies that don’t.

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Theory of Disguised Unemployment | Economic Development | Economic

The theory of disguised unemployment was introduced into the theory of underdevelopment by Rosenstein Rodan in his famous article “Problems of Industrialisation in Eastern and Southern Europ e”. 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.”

However, this term was used by her in the context of developed countries alone where disguised unemployment is only a cyclical phenomenon since, with the revival of economic activity, workers return to more productive occupations and the problem ceases to exist. This disguised unemployment is a SR problem, due to underutilization of capital equipment’s.

However, much blood has been shed on the meaning and the implications of disguised unemployment. There are two fronts in the battle—the analytical and the empirical. However, we will concentrate on the analytical issues. Existence of disguised unemployment is largely a matter of definition and assumptions about the institutional forces involved.

The term ‘disguised unemployment’ is used to designate a situation in which the removal, from a working combination of factors, of some units of labour, nothing else being unchanged, will have the aggregate product of the working combination undiminished; and may even increase it.

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To say that there is disguised unemployment is, therefore, equivalent to saying, in that working combination the MP L is zero and may even be a ‘negative quantity’. A considerable amount of rural surplus labour can, therefore, be removed for productive use elsewhere, in the construction of capital goods, say, roads, irrigation works and in the manufacturing sector.

Where MP of labour is zero in the agricultural sector, surplus labour can be removed without reducing the total agricultural output. Even if the MP of surplus labour is positive in the rural sector, it consumes more than it produces in subsistence agriculture, i.e., its consumption (equal to his average product) is much higher than his marginal contribution to the production.

Thus, the removal of each unit of surplus labour will leave more food for those remaining in the farm. This surplus food can be used to feed the labour, removed for some other productive work. Thus, disguised unemployment provides with concealed savings.

However, Prof. A. K. Sen does not agree with this interpretation of surplus labour. Using A. K. Sen’s definition of the production approach, “disguised unemployment” means that a withdrawal of a part of the labour force from the traditional filed of production would leave the total output unchanged.

Given this definition, some economists proceeded to define disguised unemployment as a situation in which marginal product of labour over a wide range is zero. In defining surplus labour or disguised unemployment, one has to distinguish between labour and labourers (or flow of man hours or stock of men).

This important point was raised by A. K. Sen. According to him, it is not that too much labour is being spent in the process, but that too many labourers are working in it. Thus disguised unemployment takes the form of number of labourers.

Say, a production process needs 35 hours of labour for its completion and the work is done by 7 workers initially. Then, if two workers are removed, the remaining 5 workers work longer than 5 hours each. Thus, disguised unemployment is that of 2 workers. It is, thus, the marginal productivity of the labourer, so as to say that is nil over a wide range and the productivity of labour may be just equal to zero at the margin.

This is represented in the following diagram:

In the above figure, the south represents the number of labourers, the east represents the number of labour hours and the north represents their product. In this figure MP L = 0 or it becomes nil with OL 0 labour hours. Thus, there is no use to employ labour beyond this point. Number of labourers engaged in agriculture initially is, say, OL 2 .

This working population each puts in ‘tan a’ hours of work. But the normal and sufficient working hours per worker is ‘tan b’ (OL 0 /OL 1 ). So the job can be done by OL 1 labourers keeping normal hours. In this sense, thus L 1 L 2 working population is the existence of surplus labour. Thus, while marginal productivity of labour is nil at point L 0 only, that of the labourer is nil over the range L 1 L 2 . This represents the volume of disguised unemployment.

However, existence of surplus labour or disguised unemployment in agriculture is questioned. Shakuntala Mehra has observed that disguised unemployment is purely a seasonal phenomenon. There is a complimentarily between peak and slack season employment. Schultz, in his “Influenza epidemic test” has shown that disguised unemployment is related to selected withdrawal.

The reorganisation requires extra fund. Thus, disguised unemployment is not costless and self-financing as stated by Nurkse. In the words of Ragner Nurkse, the developing countries suffer from large-sc ale disguised unemployment in the sense that “even with unchanged techniques of agriculture, a large part of the population engaged in agriculture could be removed without reducing agricultural output”.

This means that, without changing technical methods of production, same farm output can be obtained with a smaller labour force. The proviso that is possible without any improvement in agricultural techniques is very important because, with improved techniques, one could always take some people off the land without reducing output.

Sen’s Hypothesis :

Nobel Laureate Amartya Sen demonstrated that there is no contradiction between disguised unemployment and rational behaviour. In fact, Sen provided a cogent defence of surplus labour by distinguishing between the marginal productivity of a labourer in agriculture and the marginal product of a man-hour.

In fact it can be shown that the latter being zero is neither necessary nor sufficient for existence of surplus labour. What is important is the proper recognition of farmer’s optimisation, given the fact that the farmers are conscious of the economic opportunities and incentives and behave rationally.

(i) The Economic Equilibrium of a Peasant Family:

Let us imagine a community of identical peasant families. In every family we have

α: No. of working members

β: No. of total members ‘

Each family is having a given stock of labour and capital.

Q : the family output, at a given point of time, is a function of labour alone, i.e.,

The function is smooth (i.e., twice differentiable) and normal with

Q'(L) > (or =) 0 and Q” < 0 … (1)

The MP L is assumed either:

(a) To become zero for a finite value of labour (L), with a maximum output Q, or,

(b) To approach zero asymptotically

(a) and (b)⇒Q = Max Q(L) = Q(L)

and Q'(L) = 0 … (2)

Lt Q'(L) = 0 … (3)

The peasants are assumed to be guided in their allocation efforts by the aim of maximising the happiness of the family. Furthermore, they know that every member of the family has a personal utility function “u”, which is a function of individual income “q” and every working member has a personal disutility function “v”, related to his individual labour” l “. The functions u and v are of same shape for everyone.

Surplus Labour and Zero Marginal Productivity :

The existence of surplus labour is sometimes identified with the MP L being zero. According to the above model this situation corresponds to the special case where z = 0, then the marginal disutility of labour = 0 in the relevant region.

[⇒ {z = 0 => v'(l) = 0 ⇒ Q'(L) – 0}]. However, even if MP L > 0, it is shown that there would be the existence of surplus labour [<=> as z is a positive constant; Q'(L) = v'(l) / u'(q) = z /1 > 0, still we have surplus labour if l < l*]. Thus the constancy of real cost implies that the marginal utility schedule and the marginal disutility schedule being flat in the relevant region. Thus disguised unemployment does not require MP L = 0. In other words, MP L = 0 is not a necessary condition for unemployment.

Moreover, zero marginal product of labour is not a sufficient condition too. We have a situation where z = 0(⇒ MP L = 0) but l = l* (say). In this case even if MP L = 0, any finite withdrawal of the peasant labour force will reduce the level of output, as already the labourers are working at the capacity level.

A closely related point needs to be clarified here. It is sometimes asserted that the existence of surplus labour requires certain types of production functions with limited possibilities of facts substitutability. However, this is not the case as it is evident from the preceding analysis.

While it is true that with some production functions, for example the Cobb-Douglas or, more generally, a CES production function with positive elasticity of substitution, the MP L never falls to zero, but this does not in any way rule out the existence of surplus labour.

At equilibrium we require that the marginal product of labour should equal the real labour of (*) and also the schedule of real labour cost should be flat but it is not necessary that the real labour cost be zero. Thus we do not have to restrict the class of production functions arbitrarily to admit the possibility of surplus labour.

In other words, specific form of production function is not necessary for the existence of surplus labour, as this existence does not depend on MP L and, hence, could be compatible to any production function. Moreover, we have shown that surplus labour can co-exist with positive marginal productivity of labour, i.e., that marginal productivity of labour hours could be positive, while the marginal productivity of labourer is zero.

Even if the gap created by withdrawal of labourer is filled up by extra labour hour of work by each remaining labourer, MP L (= v'(l) / u'(q) = z / 1 = z = x = real cost of labour is constant) remains constant in the relevant region. Hence we do not have any shift of the existing equilibrium family (total) labour (not labourer) and family output. Thus we get a distinction between surplus labour in terms of labour hour and that in terms of units of population, i.e., labourer.

“Thus zero marginal productivity of labour has formed the foundation for a strategy of “painless” or “up by the bootstraps” process of development (Nurkse, 1953). It is a misguided policy prescription, because, as we have seen, zero marginal productivity of labour is neither a necessary nor a sufficient condition for withdrawing workers from agriculture with a loss of output.

Sen’s result on the existence of surplus labour can be reinforced by introducing a number of assumptions as shown by Stiglitz. He showed that Sen did not consider the seasonal labour utilisation pattern. In most agricultural activities (with dairy fanning and specialised crops being the likely assumptions), the relationship between peak season labour utilisation and slack season labour utilisation is one of complementarily, rather, than substitutability.

As a result, total annual output, according to Stiglitz, is not simply a function of total labour supply, but should be taken as a function of not one homogeneous labour argument, but the labour arguments: the peak and slack season utilisations.

In the peak season, there is full utilisation of labour and demand for labour is greater than supply of labour. Therefore, L is maximum in the peak season. However, the slack season employment can be derived on the basis of utility maximisation.

With this modification, Sen’s results become even stronger. As there is a complimentarily between the slack and the peak season labour utilisations, there is not much scope of even manipulating the slack season labour usage.

Labour can never be in a surplus and total output must fall as workers migrate to the urban sector, regardless of the marginal utility of consumption and the marginal disutility of work which are crucial factor’s in Sen’s argument.

So, this observation makes the existence of surplus labour a very difficult proposition. The evidence supports Sen’s result the existence of surplus labour is also very difficult as it crucially depends on the flatness of marginal utility of income and marginal disutility of effort schedules in the relevant region.

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Grappling With the Indian Problem of Unemployment

Since India got independence, unemployment has been one of the biggest banes of India. Unlike many factors that affect the economy, the impact of unemployment on a nation is holistic.

It is because unemployment not only affects one particular person and their family but will also impact the supply and demand of all forms of businesses, inflation, logistics, overall development, health, and whatnot. It is because of all these reasons that the Indian government, like any other economy, has put in a lot of effort to mitigate the issue of unemployment.

However one needs to understand that unemployment can never be completely erased. There will always be at least a small proportion of unemployment prevalent in any kind of society and all that we can do is to ensure that this rate of unemployment is always below a certain point so that it does not adversely affect the economy.

History of Employment Pandemic and Unemployment in India The Problem of Informal Sector Implications of Unemployment Types of Unemployment Causes of Unemployment Government Initiative to Control Unemployment FAQ

History of Employment

We have all know that employment has evolved as a significant part of human society. In the olden days, things were different. Human settlements were largely for security from external threats. This is because a group of food gatherers can protect themselves against wild animals rather than solitary ones.

As society evolved to be more complex and wide, the nature of society also changed. From food gathering and hunting, it reached into agriculture. However, agriculture was only for subsistence for a large period. One can trace the expansion of agriculture to the later Vedic phase. From agriculture, employment expanded to trade, artworks, metallurgy, defense, administration, and so on.

As kingdoms flourished, the job opportunities created by them also increased significantly. The fact that taxes were introduced was in itself indicative of the health and nature of employment in the respective kingdoms. In earlier times, a lot depended on employment. We have evidence from various instances of history where kingdoms collapsed when their tax revenue decreased due to unemployment and how the population withdrew to rural areas as employment opportunities became skewed in the city.

Clear evidence of the presence of unemployment can be seen during the reign of Firuz Shah Tughlaq who reigned the Delhi Sultanate in the 14th century. It was the time when the Delhi Sultanate was on the verge of collapsing. However, the king made arrangements to take account of the unemployed people in the kingdom and tried to devise state policies to help them.

An unforgettable blow to employment in the history of humanity was the Great Depression of 1929. Spreading across the USA and Europe it crippled the world economy. It resulted in large-scale unemployment, discrepancies in economic activities, demand, and large-scale shutdown of industries.

It was a time when the world realized the extent to which things can go wrong in the face of depression. Rather than abetting employment, one must say that all economies have been trying their level best to avoid another economic depression.

Pandemic and Unemployment in India

Although not a surprise, the pandemic has aggravated the situation of unemployment in India significantly. The Indian economy continues to wriggle out of the hands of unemployment since March 2020 when all economic activities came to a standstill.

According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India as of June 2021 stands at 12.8% . In March 2021 the unemployment rates were at 6.5% from where they rose to 8% by April 2021.

To understand the graveness of the issue one must understand that the rate of unemployment in India during 2018 was only 6.1%. India's economy was already slowing down before the pandemic and the worst came along with the lockdown.

The Problem of Informal Sector

One of the main reasons for the booming rates of unemployment in India even without the pandemic was the large population that is dependent on the informal sector for employment.

Apart from all sorts of uncertainties and disguised unemployment that is rampant here, the worst part is that there is no proper data regarding the number of people, the kind of job, and the implications of such jobs with the government.

Even as the productivity of India grew over time the rate of employment generation was inadequate. This means that a very small population contributes to the growth of the Indian economy while more than 75 percent of the working population is confined to the informal sectors like agriculture, small enterprises , construction, etc.

Implications of Unemployment

Unemployment as we all know is a state where a person who is actively searching for a job with all necessary qualifications is still unable to get a proper job. It is an indicator of the health of an economy.

As mentioned earlier unemployment will result in lower demand for goods and will lead to a decrease in purchasing power of citizens. These inadvertently affected the overall business and employment generation of the Indian economy. It further stresses the necessity of the government to be watchful of the rate of unemployment in their respective nations.

Types of Unemployment

There are different kinds of unemployment and each one of them is equally dangerous and requires the supervision of an independent organization to prevent the numbers from going out of hand. A few of them are mentioned below

Disguised Unemployment

This form of unemployment as the name suggests is in disguise and almost invisible to the eyes of the observer. Disguised unemployment refers to a situation where an excess number of people are employed for a particular task. In this case, they look employed but in fact, it is a form of unemployment.

Technological Unemployment

Technological unemployment refers to those forms of unemployment that are a result of technological advances that humanity achieves. According to certain surveys, job losses due to technological advances are increasing by 30% every year.

Seasonal Unemployment

It refers to those kinds of unemployment where the labourers are unemployed for a certain period of the year while they find work during the rest of the year.

Vulnerable Unemployment

A person is said to be under vulnerable unemployment when they have a job but they are appointed without any job contracts or securities. It is one of the most prevalent forms of unemployment in India.

Causes of Unemployment

Various factors cause unemployment. Although a small amount of unemployment is inevitable, a large fraction of it can be avoided through careful planning and efficient implementation. Here are a few causes of unemployment in India.

Lack of Skilled Population

Due to the lackadaisical state of most of the educational institutions in India, there is a significant deficit in the number of skilled population for doing a particular job.

Most of the companies share their experience where they have to additionally train the employees to make them understand and adjust to the job that they are supposed to do. India can mitigate this problem only if the quality of education right from school to higher education is improved .

Large population

The population in India is the second-largest in the world. And it is anticipated that in a few years they will surpass the population of China. The population is a boon to a nation. But in India, the problem is that this valuable resource is not properly used.

We must not forget that India has the biggest working population in the world. And imagine the impact that India could have had over the world economy if it actually put enough effort to develop each individual in the best way possible. Since that is not happening, the large population continues to be a burden that worsens the situation of unemployment in India.

Low Productivity

India is an economy whose prime moving force in agriculture. Ideally, India was supposed to slowly switch from an agricultural economy to an industrial economy or a service sector economy. However, India is caught in a unique situation where more than half of the population is dependent on agriculture but with only a minuscule contribution to the economy.

The lack of productivity in the agricultural sector and the unavailability of enough alternatives have also resulted in rampant unemployment especially in rural India.

Improper Infrastructure

Proper infrastructure and adequate investments in the manufacturing and service sectors are integral parts of generating employment in any nation. But things were grim for India in this regard and the situation had contributed its part in increasing unemployment in India.

It is mainly because of the lack of proper infrastructure and investment that the growth of industries in secondary sectors especially is restricted.

Regressive Social Norms

Social norms that deter Women and marginalized groups from taking decisions regarding employment and access to education have kept a large part of the Indian population in the darkness of unemployment.

Although a lot of changes are coming up in this regard, there is still a lot to be done to improve the situation of women and other marginalized communities in society.

Government Initiative to Control Unemployment

• TRYSEM – Training of Rural Youth for Self-Employment - 1979
• IRDP – Integrated Rural Development Programme (IRDP) - 1980
• RUDSETI — Rural Development And Self Employment Training Institute - 1982
• MNREGA – Mahatma Gandhi National Rural Employment Guarantee Act - 2005
• PMKVY – Pradhan Mantri Kaushal Vikas Yojana - 2005
• National Skill Development Mission - 2014
• Start-Up India Scheme - 2016
• Stand Up India Scheme - 2016
• PMGKY - Pradhan Mantri Garib Kalyan Yojana - 2016

What is the cause of unemployment in India?

The major causes of unemployment in India are Large population, low educational levels of the working population, Inadequate growth of infrastructure and low investments in the manufacturing sector.

Which state in India has highest unemployment?

With a 26.4% unemployment rate, Haryana has recorded the highest unemployment rate in the country, as per the data released by the Centre for Monitoring Indian Economy for February 2021.

What is the unemployment rate in India?

India's unemployment rate sharply rose to 7.11 per cent in 2020 from 5.27 per cent in 2019.

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The Hidden Problem of Disguised Unemployment: Causes, Examples, and Solutions

Have you ever heard of the term “disguised unemployment”? It may sound like a fancy term, but it’s a concept that affects millions of people around the world. Disguised unemployment refers to a situation where people appear to be employed, but in reality, they are not fully or productively employed.

This means that they may be working, but their productivity is zero or nearly zero, and their presence or absence does not affect the overall productivity of the workforce.

In this article, we will dive deeper into the causes, examples, and negative effects of disguised unemployment. We’ll also explore potential solutions that can help address this issue. So, let’s get started and learn more about this important topic.

Causes of disguised unemployment

Now, let’s take a closer look at the causes of disguised unemployment.

One major cause is surplus labor supply. This occurs when there are too many workers available for too few jobs. As a result, some workers may be employed in jobs that do not require their full potential, leading to low productivity.

Another cause of disguised unemployment is low-productivity jobs. Some jobs may require a high number of workers to perform repetitive manual labor or menial tasks that could be done more efficiently by fewer workers. This leads to inefficient use of resources and low productivity per worker.

Finally, poor job matching or skills mismatches can also contribute to disguised unemployment. When the labor force is not matched with jobs that fully utilize their skills and qualifications, they may be underemployed or not employed at their full potential. This can lead to a situation where workers are employed, but their productivity is low.

Understanding the causes of disguised unemployment is crucial in addressing this issue. In the next section, we will explore some examples of disguised unemployment in different sectors.

Examples of disguised unemployment

Let’s take a look at some examples of disguised unemployment in different sectors.

One sector where disguised unemployment is common is agriculture. In developing countries, where there is often a surplus of labor, farmers may employ more workers than necessary to work on their farms. This results in low productivity per worker and inefficiencies in resource allocation.

Disguised unemployment is also prevalent in the manufacturing sector. For instance, a factory may employ more job seekers than necessary to operate its machines, resulting in some workers not being fully utilized. This can lead to marginal productivity and high labor costs.

In the service sector, disguised unemployment can occur when there are too many workers employed in low-productivity jobs. For example, a restaurant may employ too many servers to attend to a small number of customers, leading to inefficient use of resources and low productivity.

These are just a few examples of how disguised unemployment can manifest in different sectors. In the next section, we will explore the negative effects of disguised unemployment.

Negative effects of disguised unemployment

Disguised unemployment can have several negative effects on the economy. One of the most significant negative effects is low productivity. When workers are not fully utilized or are employed in low-productivity jobs, the overall output of the economy decreases. This can lead to slower economic growth and lower standards of living for the population.

Disguised unemployment can also lead to an inefficient allocation of resources. When workers are employed in jobs where their productivity is low, resources such as capital, raw materials, and energy are wasted. This can result in higher costs and reduced competitiveness in the global market.

Disguised unemployment can have social consequences such as increased poverty and income inequality. Workers who are underemployed or not employed at their full potential may earn lower wages, leading to a widening income gap between the rich and the poor.

According to unemployment statistics, the average OECD unemployment rate among its member countries was 5.3% in October 2022. However, these statistics may not capture the extent of disguised unemployment, as some workers may be counted as employed even if they are working in a redundant manner or not at their full capacity or skill level. Therefore, some alternative measures of labor underutilization may be more useful to assess the situation of disguised unemployment.

Overall, disguised unemployment is a problem that needs to be addressed to achieve sustainable economic growth and development.

Seasonal and hidden unemployment

Seasonal employment refers to jobs that are available only during specific seasons or times of the year, such as jobs in the tourism industry during the summer or in retail during the holiday season. These jobs can result in temporary seasonal unemployment during the off-season.

Hidden employment, on the other hand, refers to workers who are employed in the informal sector or who are not recorded in official employment statistics. These workers may be engaged in activities such as self-employment or family farming in rural areas, and their work is not officially recognized or taxed.

Both seasonal employment and hidden employment can be related to disguised unemployment. Seasonal employment can result in temporary unemployment during the off-season, which can contribute to disguised unemployment if workers are unable to find employment during this time.

Hidden employment can also contribute to disguised unemployment if workers are not fully utilizing their skills and potential, or if their work is not recognized or included in official statistics. In some cases, workers in hidden employment may be underemployed or working in low-productivity jobs.

Solutions to address disguised unemployment

There are several solutions that can help address disguised unemployment. One potential solution is to create more productive job opportunities. This can be achieved by investing in industries that require higher skills and knowledge or by promoting innovation and entrepreneurship.

Upgrading workers’ skills and education is another solution to address disguised unemployment. This can be done through vocational training programs, apprenticeships, or educational programs that focus on developing skills that are in demand in the job market.

Encouraging entrepreneurship and small business development is also a potential solution. By promoting small business development, more job opportunities can be created, and workers can have more control over their employment situation.

Governments can implement policies that encourage job creation and provide incentives for employers to hire workers at their full potential. This can be achieved through tax breaks, subsidies, or other forms of financial support.

Finally, creating a more flexible labor market can help address disguised unemployment. This can be achieved through measures such as reducing labor market regulations or increasing the flexibility of employment contracts

Disguised unemployment is a problem that affects millions of people around the world. It occurs when workers are employed in jobs where their productivity is low or where they are not fully utilized. This can lead to lower productivity, inefficient resource allocation, and social consequences such as increased poverty and income inequality.

To address disguised unemployment, we need to focus on creating more productive job opportunities, upgrading workers’ skills and education, promoting entrepreneurship and small business development, and implementing policies that encourage job creation and provide incentives for employers to hire workers at their full potential.

It’s important to recognize that addressing disguised unemployment is a long-term process that requires cooperation between governments, businesses, and individuals. By working together, we can create a more efficient and productive economy that benefits everyone.

So, let’s continue to raise awareness about disguised unemployment and work towards implementing effective solutions to create a more productive and sustainable economy.

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Explain disguised unemployment with an example.

Answer: the situation of underemployment is referred to as the situation when people are apparently working but all of them are made to work less than their potential is called disguised unemployment. in this case, the person considers himself employed but is actually not working. example (i) in rural areas, where agriculture is the main source of income, this kind of unemployment can be seen often. if a piece of land requires only three people to work on it and instead five people are working on it, then the two extra people are said to be in a situation of disguised unemployment. (i) in cities and urban areas, disguised unemployment is seen when painters, plumbers, electricians are unable to find work on a daily basis and work way less than their potential..

Distinguish between open unemployment and disguised unemployment.

What is the difference between disguised unemployment and seasonal unemployment?

Study of the Deformation during Turning of Brass Sheets on a Two-High Mill by Rolling Methods and Computer Simulation

• PLATE ROLLING
• Published: 11 January 2022
• Volume 2021 , pages 1771–1776, ( 2021 )

Cite this article

• R. L. Shatalov 1 ,
• A. S. Kalmykov 1 &
• I. M. Taupek 2  

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The quality of sheet billets for deep drawing must meet high requirements not only in terms of size and flatness, but also in terms of structure and mechanical properties. A fine-grained structure and a uniform distribution of mechanical properties over the thickness, length and width of rolled brass sheets allows rolled brass products to be used for deep drawing on stamping complex shaped products. One of the ways to decrease the anisotropy of the properties is to turn a sheet before the second pass. The effect of changing the direction of sheet rolling by turning on the structure and mechanical properties of brass L63 is studied on a laboratory two-high 150 × 235 mill. A computer simulation of the cold rolling process is carried out using the DEFORM-3D software package. A comparison of the simulation results with the results of a laboratory experiment on a sheet mill demonstrates the possibility of using DEFORM-3D to predict the stress distribution in the deformation zone in rolling depending on the metal forming conditions. The DEFORM-3D software package is found not to estimate the effect of changes in the grain size and shape on stresses during rolling with turning. The experimental results show that rolling of sheets with turning can decrease the anisotropy of properties, and the efficiency of rolling with turning increases when the reduction increases to 30–40%.

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R. L. Shatalov & A. S. Kalmykov

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Shatalov, R.L., Kalmykov, A.S. & Taupek, I.M. Study of the Deformation during Turning of Brass Sheets on a Two-High Mill by Rolling Methods and Computer Simulation. Russ. Metall. 2021 , 1771–1776 (2021). https://doi.org/10.1134/S0036029521130267

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Received : 18 March 2020

Revised : 12 May 2020

Accepted : 27 May 2020

Published : 11 January 2022

Issue Date : December 2021

DOI : https://doi.org/10.1134/S0036029521130267

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