ECONOMY

What is disguised unemployment?

DEFINITION

Disguised Unemployment is when workers are employed, but they are not working or their time is only partially used.

The Key Takeaways

  • Underemployment, hidden unemployment or partial unemployment are all terms used to describe disguised unemployment.
  • Workers who are left unemployed, redundant or not fully utilized are considered to be disguised unemployed.
  • This type of unemployment is often caused by an increase in the use of technology, a mismatch between demand and supply for certain types workers, or a lack of knowledge about employees’ skills.
  • When there is disguised employment, the overall productivity and economic production tend to be lower.

Disguised unemployment: Definition and examples

Underutilization is disguised unemployment. This type of employment occurs when there is a high number of workers in a particular sector relative to their resources (capital, raw materials, and technology). This particular labor force is likely to be redundant, which means that the output of this sector would not decrease if some of them quit their jobs.

Alternate name: Underemployment, hidden unemployment, partial unemployment

Note:

It can be hard to measure disguised unemployment, as you need to survey workers in order to compare their skills to those of their current jobs.

There are two ways that disguised unemployment may occur:

  1. Workers in the agriculture sector are a good example. There are specific weeks or months of the year that have little activity, usually during winter. In these months workers do not use their skills and craft to the fullest extent.
  2. Imagine a small manufacturing plant with eight workers doing the same job. The overall output would remain the same if half of these workers quit.

 

How does Disguised Unemployment work?

In disguised unemployment there may be a surplus of workers required to complete current production. It can be due to a combination of an increase in technological advancements, a mismatch between the demand for certain types workers and faulty knowledge of their skills.

As artificial Intelligence (AI) takes over certain tasks, such as data entry, analysis and problem solving, workers may do less work and become underutilized. A second reason could be that there are too many qualified workers compared to the number of positions available. This can cause skilled workers to accept jobs below their level of skill or lower paying ones in order to make money.

Employer-employee “imperfect communication” can also manifest as disguised unemployment. The employer may not understand the skill sets of the employee while the employee might not be able to provide feedback to improve the production methods. A better sharing of knowledge could help an employer fix the problem that they are not using their employees to the fullest by increasing capital investment or changing production methods.

 

How is Disguised Unemployment Measurable?

The Current Population Survey (CPS) measures disguised unemployment or underemployment. The U.S. Census Bureau, in conjunction with the U.S. Bureau of Labor Statistics (BLS), conducts a national household survey. Bureau of Labor Statistics. This survey is conducted by the Bureau of Labor Statistics (BLS) and asks about 60,000 households about the employment and unemployment status for household members who are at least 16 years old. These answers are used to calculate the BLS’s different unemployment rates. 2

U-6 is the broadest measure of underutilization of labor. It measures the rate of real unemployment for all workers, including those working part-time and those unemployed. The underemployed are also included in this measurement, those who work part-time but want to work full-time. This measure is flawed because it doesn’t capture full-time employees who work in jobs that don’t fully utilize their skills or aren’t in positions that do.

Note:

There is no official government statistics available about the total of people who may be disguised unemployed or underemployed.

 

How common is disguised unemployment?

According to 2021 findings from the agencies, about 40% of recent college graduates are underemployed compared to 33% of total college graduates ages 22-65. According to findings released by the agencies in 2021, approximately 40% of recent graduates are underemployed. This compares to 33% of all college graduates aged 22-65. 3 The most common job categories for college graduates underemployed are information processing and business assistance, public safety and office support.

the authorAaron Krause

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