What Is Disguised Unemployment?

Disguised Unemployment Explained

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Disguised unemployment occurs when workers are employed but left without work or only partially utilized for their available time. However, if these particular workers stop working, it does not necessarily affect output as they were working in a redundant manner and not being productive members of the labor force.

To gain a better understanding of what disguised unemployment is, it’s important to delve further into what the term means, how it’s evolved, and how it works.

Definition and Examples of Disguised Unemployment

Disguised unemployment is the underutilization of workers based on their capabilities and skills. This type of unemployment can occur when there are a large number of people working in a sector relative to the number of resources they have access to (i.e., capital, raw materials, technology). In effect, this particular labor force may be working in a redundant manner, meaning that if a number of them left their jobs, the total output of the sector would not be diminished. 

Alternate name: Underemployment, hidden unemployment, partial unemployment 

Disguised unemployment can be difficult to measure as it requires surveying workers to understand their skills compared to the requirements of their current job.   

There are a couple of ways in which disguised unemployment can occur: 

  1. One example would be workers in the agricultural sector. Specifically, there are certain weeks or months a year, typically during winter, in which there is little activity. In these months, workers are not plying their craft and skills to their full potential.
  2. Let’s say there’s a small factory with eight employees doing the same work. If half of those workers stopped working, the overall output of the factory would essentially remain unchanged.  

How Does Disguised Unemployment Work?

As noted above, with disguised unemployment, there can be too many workers needed to carry out current production activities. This can occur due to an increase in technology coupled with a mismatch in demand for certain types of workers and imperfect knowledge of their skill sets.  

As technology such as artificial intelligence (AI) replaces parts of a worker’s job in tasks such as writing, data entry and analysis, and problem-solving, they may be doing less work than they previously were and, in turn, become underutilized. Another cause is that there may be too many skilled workers relative to positions available. In this case, skilled workers may have to take jobs that are below their skill level or are lower paying in order to earn income, which can lead to them not being able to take full advantage of their skills.  

Disguised unemployment can also be manifested in what’s called “imperfect knowledge” between the employer and the employee. For instance, the employer may not fully understand the skill set of the employee, while the employee may not have the ability to communicate feedback in order to change the methods of production to better utilize their skill set. If there was better knowledge shared, an employer can perhaps fix the problem of not fully utilizing their staff by changing the methods of production or increasing capital investment so there are enough resources for the laborer to fully work.

How Is Disguised Unemployment Measured?

Disguised unemployment, or underemployment, is measured by the Current Population Survey (CPS). This is a nationwide household survey conducted by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics (BLS). The survey asks approximately 60,000 households questions on the work and unemployment status of members of the household who are 16 years and older. The answers to these questions inform the different unemployment rates reported by the BLS.

The broadest metric of labor underutilization is U-6, which measures the real unemployment rate of all workers including those employed part-time, those who are unemployed, and those marginally attached to the labor force. This measurement also captures part of the underemployed—those who are working part time but wish to work full time. The issue with this measure, however, is that it does not capture those who are full-time workers but are working in a position where they are not fully utilized or in a job that uses their skill set.  

There is no official government statistic available on the total number of people who might be underemployed or disguised unemployed.

How Prevalent Is Disguised Unemployment?

While it is difficult to measure exactly how many workers are not being fully utilized, one underemployment metric used by the BLS and the Department of Labor is the number of people with college degrees who work in jobs that do not require such a degree. According to 2021 findings from the agencies, about 40% of recent college graduates are underemployed compared to about 33% of total college graduates ages 22-65. Among college graduates who are underemployed, the most common categories of jobs are in the fields of information processing and business support, public safety, and office support.

Key Takeaways

  • Disguised unemployment is often referred to as underemployment, hidden unemployment, or partial unemployment.
  • Disguised unemployed refers to workers who are left without work, are working in a redundant manner, or are not being utilized to their full potential.
  • This type of unemployment can be due to an increase in technology, a mismatch in demand for certain types of workers, and imperfect knowledge of employees' skill sets. 
  • Economic production and overall productivity tend to be lower when there is disguised unemployment.