Meaning of Disguised Unemployment

Joan Robinson was perhaps the first economist who used the term ‘disguised unemployment. But she used this term for the people taking to occupation with comparatively low productivity and income instead of occupations of high productivity and large income during periods of depression in the developed and advanced countries. But the term ‘disguised unemployment’ is used in a different sense in the under developed countries

In the under-developed countries, disguised unemployment refers to a situation where too many people are engaged in agriculture. A common characteristic of the over-populated under-developed countries is that a large majority of population draw their livelihood from agriculture. In a situation of rapidly increasing population and owing to slow rate of industrialization, naturally a large number of people gravitate to land, because sufficient employment opportunities are not available in the non-agricultural sector to absorb the growing population. The result is that more people are apparently engaged in agriculture than are warranted by the size of the land holding and capital available and the techniques of cultivation. If some of them arc withdrawn, it will not reduce agricultural  output and may perhaps increase it, because as it is said too many cooks spoil the broth. This disguised unemployment is found in the self employed agricultural population. The term ‘disguised unemployment’ is used to refer to such a situation because such people are only apparently employed. In fact they are unemployed or only partly Deployed and their unemployment is concealed. Sincerity more people seem to be working in agriculture Nathan is necessary, some of them can be withdrawn without reducing the total output. In other words, their marginal productivity is zero.

Some economists arc of the view that the term disguised unemployment’ refers to seasonal unemployment, because all workers are able to get full employment during the harvesting season. This is true to some extent, but even in the harvesting season.

Difference between Disguised Unemployment aim Open Industrial Unemployment. The disguised unemployment of under-developed countries in agriculture is different from the open industrial unemployment to be found in the developed countries. The cause of open unemployment in the industrial countries is the deficiency of effective demand during depression. Owing to a reduction in aggregate demand, output is reduced in some factories and other factories arc altogether closed on account of lack of demand for their goods. As a result, labor employed in such Courtesies is retrenched. Thus, there is open unemployment of industrial labor, in spite of the availability of capital. The cause of this unemployment, as we have said just now, is the reduction in aggregate demand. This type of unemployment can be removed by increasing aggregate demand by creating new money or by deficit financing, i.e., by putting new purchasing power in the hands of the people.

In other words, the disguised unemployment in the under-developed countries is caused  a lack of capital formation. industrialization and economic development commensurate with the rapid increase in their population. That is why it cannot be cured by deficit financing and by creating new money. Deficit financing would merely raise prices in such countries and there would be inflation because owing to deficiency of capital, output of goods cannot be increased in these countries as fast. Hence, deficit financing will have no effect in removing this unemployment.