In the previous chapter, we briefly referred to disguised unemployment as a potion ital source of capital formation. In view of its importance in the theory of economic growth, we examine it more fully here.

In the under-developed countries, we find large-scale open unemployment and disguised unemployment, especially in the agricultural sector, owing to rapidly increasing population. Specialists in the theory of economic development like Ragnarok Nurse, Maurice Cobb and Arthur Lewis, have suggested the use of surplus labor found in disguised unemployment in the under-developed countries for capital formation and for promoting economic development. According to them, disguised unemployment, which indicates surplus labor and which at present is a great liability, can be converted into a great a;set. Hidden in the surplus labor in agriculture is substantial saving available for capital formation. Nurse and other development economists are of the view that there is great scope for increasing the rate of capital formation and for accelerating economic growth if the surplus labor is withdrawn from agriculture and is used in more productive employments elsewhere.

We shall discuss below what disguised unemployment means and how it can be used for capital formation and for promoting economic development.