Disguised unemployment occurs when a portion of the labour force is either unemployed or working in such a redundant manner that worker productivity is essentially zero. Unemployment has no effect on aggregate output. When productivity is low and there are too many workers filling too few jobs, an economy exhibits disguised unemployment.


The Economic Impact of Disguised Unemployment

  • It is distinguished by low productivity and primarily follows informal labour markets and agricultural labour markets, which are capable of consuming large amounts of labour.
  • Labor’s productive capacity is not translating into economic output. This is because the employee is not being fully utilised.
  • It may show that many people are employed, but this will have no effect on India’s growth, which will remain stagnant.
  • Methods for Overcoming Disguised Unemployment
  • Population control: Educating the public about population control measures such as family planning programmes. BIMARU states continue to account for 23% of the population and are predominantly out-migration states.
  • Taking advantage of the demographic dividend by making credit available to people for self-employment. Offering programmes for skill development and entrepreneurship.
  • Shifting to labor-intensive industries: Encouraging workforce mobility from rural to urban areas.
    • Food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel, and garments are among the labor-intensive manufacturing sectors in India.
    • To create jobs, special packages tailored to each industry are required.
  • Decentralisation of industrial activities is required so that people from all regions can find work.
  • Women in the labour force: Concrete measures aimed at removing social barriers to women’s entry and continued participation in the labour market are required.
  • Vocational education: The government must keep a close eye on the education system and experiment with new methods of producing skilled labour. This is incorporated into the New Education Policy.
  • National Employment Policy (NEP): A National Employment Policy (NEP) is required, which would include a set of multidimensional interventions covering a wide range of social and economic issues affecting many policy spheres, not just labour and employment.
    • The policy would be a critical tool in achieving the goals of the 2030 Agenda for Sustainable Development.


Disguised unemployment traps the economy in lower growth without a proper diagnosis of what is ailing it. It results in a failure to realise the full potential of the demographic dividend, which could otherwise provide significant benefits to society and make it more inclusive. As a result, governments must quickly shift jobs away from agriculture and into more labor-intensive and productive sectors with high growth potential.

Legacy Editor Changed status to publish December 5, 2022