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 his or her field may be considered underemployed, as the person is working below his or her skill set. Additionally, a person working part time in his or her 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, he or she is 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, he or she is 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.