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Disguised Unemployment: Definition and Different Types


Disguised unemployment refers to a situation where more people are employed than are actually needed for efficient production, typically in an overstaffed sector such as agriculture. In this scenario, the removal of some workers wouldn’t affect the overall output. It can occur in different types, including seasonal unemployment and underemployment, where workers are not fully utilized in their skills.


The phonetic pronunciation for “Disguised Unemployment: Definition and Different Types” is Disguised: /dɪsˈɡaɪzd/Unemployment: /ˌʌnɛmˈplɔɪmənt/Definition: /ˌdɛfɪˈnɪʃən/and: /ænd/Different: /ˈdɪfərənt/Types: /taɪps/

Key Takeaways

  • Disguised unemployment refers to a situation where too many people are employed for the same work that does not require the service of so many workers. It’s common in overpopulated countries and implies that a sector of the population is being underutilized.
  • There are two main types of disguised unemployment – rural and urban. Rural disguised unemployment occurs when too many people are engaged in agricultural activities. On the other side, Urban disguised unemployment happens when there is a higher proportion of labourers than required in the secondary and tertiary industries.
  • The most important takeaway about disguised unemployment is the impact it has on an economic system. Since the surplus workers in disguised unemployment are not contributing to total output, they could be used more effectively in other areas, increasing productivity and improving the country’s economic situation. Identifying and addressing disguised unemployment presents an opportunity for significant economic improvement.


The term “disguised unemployment” is a significant concept in business and finance as it refers to a situation where too many workers are employed in a job role that does not require so many, indicating inefficiency in the utilization of labor. Understanding and identifying the types of disguised unemployment is crucial for organizations, policymakers, and economists as it essentially denotes that a portion of the employed population is unproductive, leading to a loss of potential output, thereby affecting economic growth negatively. Moreover, addressing disguised unemployment can lead to improvements in labor market efficiency, productivity, and overall economic performance. Consequently, the effective management of disguise unemployment can assist in economic planning, resource allocation and foster sustainable economic development.


Disguised unemployment fundamentally serves as a term to indicate the inefficiency within an economic system where too many workers are performing a task that could be handled by fewer people. This type of unemployment is most often observed in developing countries where agriculture is the primary source of income. In these situations, additional family members may work on the farm when their labor is not necessarily needed, resulting in low productivity and minimal income. In sum, the term disguised unemployment is used to highlight these inefficiencies and circumstances where labor is not being used to its full potential.

Moreover, disguised unemployment serves as an essential indicator of the economic stability and productivity level within a country. By identifying the prevalence of such a phenomenon, corrective measures such as education, vocational training, and improvement of other sectors can be introduced to reduce the level of disguised unemployment. Various types of disguised unemployment can exist, with seasonal and voluntary disguised unemployment being most common. Seasonal disguised unemployment happens when people are unable to find jobs during some months of the year. On the other hand, voluntary disguised unemployment occurs when people aren’t willing to work due to various reasons such as dissatisfaction with potential wages. Overall, the concept of disguised unemployment helps to shed light on underlying economic and labor issues within a society.


1. Agricultural Sector: In many developing or underdeveloped countries, the agricultural sector often sees a high level of disguised unemployment. Here, the entire family might be involved in farming, but not everyone’s contribution is necessary for the yield. For instance, a piece of land might only effectively require two people for its farming processes, but six people are involved in the process, rendering the work of the extra four people as surplus labor, or disguised unemployment.

2. Public Sector: Government departments often have more employees than what is needed for efficient functioning. There may be additional staff who don’t contribute significantly to productivity. Their work can potentially be done by fewer people. In some scenarios, this excess employment is a result of political pressures to maintain or increase employment levels.

3. Small Scale Industries: Many small businesses or firms may also have disguised unemployment. Similarly to the examples above, they have more workers than what is required for optimum production. This can often be seen in family-run businesses where all members of the family may be employed, despite not all of them being necessary for the business operation.

Frequently Asked Questions(FAQ)

What is the definition of disguised unemployment?

Disguised unemployment is an economic term that refers to a situation where a portion of the labor force is employed in such a way that their physical input in work is not contributing to the output, hence it seems like they are employed, but in reality, they are not fully productive. This is often due to overstaffing and is commonly seen in developing countries in the agricultural sector.

What are the common types of disguised unemployment?

The main forms of disguised unemployment generally occur in two sectors – the agricultural sector and the informal sector. In agriculture, there’s often more people working the land than necessary. In the informal sector, uncounted or unproductive jobs, such as unnecessary manual labor, are often prevalent.

How does disguised unemployment impact the economy?

Although disguised unemployment might not directly result in unemployment numbers, it still impacts the economy negatively. The inefficient use of labor in an overstaffed work environment means that productivity and potential output are reduced, limiting economic growth and development.

What causes disguised unemployment?

Disguised unemployment is primarily caused by a lack of alternative employment opportunities, limited access to education or training, and economic factors such as low productivity in the agricultural sector or overstaffing in the informal sector.

What are the potential solutions for disguised unemployment?

Reforms in employment structure, investments in education and vocational training, and creating more job opportunities in a variety of sectors can help address disguised unemployment. Developing the industrial and service sectors in economies heavily dependent on agriculture is also a potential solution.

Can disguised unemployment exist in developed countries?

While it is most commonly found in developing countries with a heavy reliance on agriculture, disguised unemployment can also exist in developed countries, especially during times of economic downturn, where employees might be retained but their full productivity isn’t utilized.

Is disguised unemployment a temporary or permanent issue?

Disguised unemployment could either be temporary or permanent. In the agricultural sector, it might be temporary- fluctuating with seasons and harvest periods. However, in the informal sector and during recessions, it could take a more permanent form if structural reforms aren’t implemented.

Related Finance Terms

  • Underemployment: This is a scenario where workers are employed less than the full-time or are employed in jobs that do not utilize their skills.
  • Structural Unemployment: This type of unemployment is caused by structural changes in the economy, leading to a long-term mismatch between the skills and locations of workers and the requirements of jobs.
  • Cyclical Unemployment: This type of unemployment is related to the short-term economic cycles and often occurs during recessions.
  • Frictional Unemployment: This type of unemployment occurs due to the time lag between when a person loses a job and when they find another.
  • Seasonal Unemployment: This type of unemployment occurs when workers are laid off during off-season periods in industries that are seasonally driven like agriculture, tourism etc.

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