Understanding Disguised Unemployment: Key Concepts and Types

What Is Disguised Unemployment?

Disguised unemployment occurs when labor force members are engaged in jobs but produce minimal or zero productivity, meaning their output does not influence the economy’s aggregate production. It often arises in economies with labor surpluses where too many workers perform tasks that lead to low productivity.

How Disguised Unemployment Manifests in Economies

Disguised unemployment exists frequently in developing countries whose large populations create a surplus in the labor force. It is often found in areas with low productivity, like informal labor markets and agricultural markets, which can take in many workers.

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.

Disguised unemployment can also mean people have jobs but are not working efficiently. 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.

Exploring Variants of Disguised Unemployment

Understanding Underemployment as Disguised Unemployment

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.

Impact of Illness and Disability on Workforce Participation

Disguised unemployment also includes people who are ill or 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.

Hidden Workforce: The Challenge of Discouraged Workers

If someone stops looking for work, they often aren't counted as unemployed in statistics. 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.

The Bottom Line

Disguised unemployment highlights a hidden aspect of labor economies where individuals are engaged in jobs that do not fully utilize their skills or potential, leading to low productivity. This phenomenon is prevalent in places with surplus labor forces, such as developing countries, and often goes unrecognized in official unemployment statistics. Understanding disguised unemployment helps illuminate issues of underemployment, especially among part-time workers, those in roles beneath their skill level, and individuals discouraged from job searching. Recognizing these inefficiencies can guide policymakers and economists toward solutions that fully leverage human capital, improve productivity, and offer more accurate employment metrics.