“DISGUISED UNEMPLOYMENT”

A Research Project of course Economics-I for the requirement of

the degree B.A.LL.B (Hons.) for academic session 2019-2020.

Submitted by: SankalpYashVardhan

Submitted to: Dr. Shivani Mohan

Session: 2018-2023

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

MITHAPUR, 800001

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 DECLARATION BY THE CANDIDATE
I hereby declare that the work reported in the B.A. LL.B(Hons.) Project Report Entitled
“Disguised unemployed” submitted at Chanakya National LawUniversity, Patna is an
authentic record of my work carried out under the supervision of Prof. Dr. Shivani Mohan.

I have not submitted this work elsewhere for any other degree or diploma. I am fully
responsible for the contents of my Project Report.

(Signature of the Candidate)

SANKALP YASH VARDHAN
Chanakya National Law University, Patna

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 ACKNOWLEDGEMENT

Firstly, I would like to thank my faculty of Economics Prof. Dr. Shivani

Mohan for providing me an opportunity to make my project on such an
interesting topic. Secondly, I would like to thank all my colleagues and friends
for helping me out in arranging of the accumulated collected study material.

Lastly, special thanks to my parents for guiding me in giving the final touch to
this project and helping me out throughout this project.

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 Table of Contents

1. NTRODUCTION .........................................................................................................5
2. RESEARCH METHODOLOGY ...............................................................................6
3. TYPES OF UNEMPLOYMENT ................................................................................7
4. DISGUISED UNEMPLOYMENT IN INDIA……………………………………..8
5. PROBLEMS ARISING DUE TO DISGUISED UNEMPLOYMENT………….10
6. CAUSES OF DISGUISED UNEMPLOYMENT………………………………..11
7. MEASURES TO SOLVE…………………………………………………………..11
8. MEASURES TAKEN BY GOVRNMENT………………………………………..12
9. CONCLUSIONS AND SUGGESTIONS .................................................................13
10. .BIBLIOGRAPHY .....................................................................................................14

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Introduction

Unemployment is a situation when a person who is able to work and is actively seeking a job
but could not find suitable employment for him/her. In other words, people who are without
work despite the continuous search for the employment is called as unemployment.
It is measured in terms of the unemployment rate, which is calculated by dividing the total
number of unemployed workers by the number of currently employed individuals in the labor
force.
The Disguised Unemployment refers to the work area where surplus manpower is employed
out of which some individuals have zero or almost zero marginal productivity such that if
they are removed the total level of output remains unchanged. In other words, More workers
employed on a single piece of work than actually required is called as the disguised
unemployment. The persons who are employed and remains unproductive throughout the
work is said to be disguisedly unemployed.

For example, Suppose a land can be harvested by ten persons effectively, but actually, 14
workers are engaged in similar kind of a job, then the marginal productivity of additional four
persons will be zero as they will contribute nothing to the level of output. And, thus, the
removal of these extra workers will lead to no change in the total productivity even without
any change in the method of production.The disguised unemployment is very much prevalent
in the under developing and unorganized sectors of the economy, such as agriculture, where
the population pressure is high, and the job opportunities are few. It is very difficult to track
the disguised unemployment as it cannot be measured and shown in the official records of
unemployment.

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.
Research Methodology

The researcher is limited to the doctrinal method of research which includes articles,
journals, books and reviews by different laurates of economics. The basic purpose behind
doctrinal research is that it shows correct facts of data and not of worldly opinion, the
doctrinal research is highly corroborative in nature and is accepted very readily. The
research work is related with disguised unemployment .

Aims and Objective

The aim of this study is to know the economic impact of disguised unemployment on the
economy of any country whether it is positive or negative. It is also to verify that how
much economic growth is influenced by disguised unemployment the in long- period and
in short-period. To provide policy recommendations that how the policies should be
formulatedin order to see a change in economy positively.

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 TYPES OF UNEMPLOYMENT

Some types of unemployment are:-

 STRUCTURAL UNEMPLOYMENT: Structural unemployment is caused by a

mismatch between the sufficiently skilled workers looking for jobs and the vacancies
available. Even though the number of vacancies may be equal to the number of the
unemployed, the unemployed workers lack the skills needed for the jobs, or are in the
wrong part of the country or world to take the jobs offered. Structural unemployment
is a result of the dynamics of the labour market and the fact that these can never be as
flexible as, e.g., financial markets.

 SEASONAL UNEMPLOYMENT: Seasonal unemployment results from the

fluctuations in demands for labour in certain industries because of the seasonal nature
of production. In such industries there is a seasonal pattern in the demand for labor.
During the period when the industry is at its peak there is a high degree of seasonal
employment, but during the off-peak period there is a high seasonal unemployment.
Seasonal unemployment occurs when an occupation is not in demand at certain
seasons.

 FRICTIONAL UNEMPLOYMENT: Frictional unemployment occurs when a

worker moves from one job to another. While he searches for a job he is experiencing
frictional unemployment. This specially applies for new entrants (such as graduating
students) and re-entrants (such as former homemakers). Frictional unemployment is
always present in an economy. Frictional unemployment exists because both jobs and
workers are heterogeneous, and a mismatch can result between the characteristics of
supply and demand. Such a mismatch can be related to skills, payment, work-time,
location, attitude, taste, and a multitude of other factors.

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  CYCLICAL UNEMPLOYMENT: Cyclical or Keynesian unemployment, also
known as demand deficit unemployment, rises during economic downturns and falls
when the economy improves. Keynesians argue that this type of unemployment
occurs when there is inadequate effective Aggregate Demand. This is caused by a
business cycle recession, and wages not falling to meet the equilibrium level. This
type of unemployment is the most serious one. This arises when demand for most
goods and services fall .1
‘

1
https://www.mapsofindia.com/my-india/social-issues/disguised-unemployment-in-india-a-probing-look

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Disguised Unemployment in India
The unemployment scenario is quite bleak in India. With every passing day, we are heading
towards a more precarious situation. A developing economy like India is defined by its large
population and large-scale unemployment, further leading to socio-economic issues like
malnutrition, poverty, drug & substance abuse and anti-social & criminal activities, etc.

At the core of such socio-economic issues lie several types of unemployment – structural,
frictional or seasonal. However, one which is more severe and even more difficult to track is
the disguised unemployment. Such an unemployment cannot even be reflected in the official
unemployment records.

Let us look at what ‘Disguised Unemployment’ actually is. In layman’s language, it is the
phenomenon wherein more people are employed than actually needed. Usually, this has been
witnessed in developing economies and more so in labour-intensive economies.

Disguised unemployment is primarily traced in the agricultural and the unorganised sectors of
the economy. As the primary sector of the Indian economy, Agriculture provides employment
to almost 51% of the total population. However, the sector’s contribution to the country’s
GDP is just 12-13%.

Problems Arising Due To Disguised Unemployment

The gross domestic product (GDP) data for 2015-2016 was declared sometime back. As
per this data, agriculture (actually agriculture, forestry and fishing), made up for around
14.1% of the GDP, during the course of the financial year. The trouble is that close to
50% of the population continues to depend on agriculture for a living.
This basically means that agriculture formed around one seventh of the Indian economy
during the last financial year. At the same time around half of the population is dependent
on it. The point being that it employs many people than it actually should. Hence, there is
a huge disguised unemployment in the rural areas. Disguised employment essentially
means that there are way too many people trying to make a living out of agriculture. On
the face of it they seem employed. Nevertheless, their employment is not wholly
productive, given that agricultural production does not suffer, even if some of these
employed people stop working

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 There are many more people than the sector requires and this leads to lower incomes for
those who work in agriculture. The broader point is that if the average incomes need to go
up, people need to be moved away from agriculture. But a new analysis suggests that this
will not happen at the pace it was earlier expected to be. Akhilesh Tilotia of Kotak
Institutional Equities makes this point in a recent research note titled Forecasts of fewer
jobs dull demographic sheen. Tilotia is also the author of The Making of India. He
reviewed a “set of 24 industry reports commissioned by the National Skills Development
Council (NSDC) and compare them with similar reports that NSDC had put together
around the end of the last decade.”
The earlier reports had put the size of the Indian workforce at 65.4 crore by 2022. The
number is now a lot lower at 57.5 crore. As far as number of people employed in
agriculture in 2022 is concerned, the earlier estimates put the number at 11.4 crore or
18% of the workforce. As per new estimates the number of people who are expected to be
working in agriculture in 2022, stands at 21.6 crore or around 38% of the workforce.
This basically means that nearly 10.2 crore more Indians will be dependent on agriculture
as a mode of living, than was expected earlier. Further, by 2022, agriculture is expected to
form around one-ninth of the GDP or the overall economic size of the country.
The automobile sector which was earlier expected to employ 4.8 crore individuals is now
expected to employ only around 1.5 crore individuals. The same goes for the food
processing sector, which was earlier expected to employ around 1.8 crore individuals, but
is now expected to employ only 40 lakh individuals. On the other hand, the numbers for
organised retail have gone up dramatically from 1.8 crore individuals earlier, to 5.6 crore
individuals, as per the latest estimates. Long story short, enough jobs will not be created
to move people out of agriculture into other sectors where they can make a living.
2001 and 2011, labour force growth was 2.23 percent (male and female combined). This
is lower than most estimates of employment growth in this decade of closer to 1.4
percent. Creating more rapid employment opportunities is clearly a major policy
challenge.”One reason why enough jobs are not being created is because of what
economists call falling labour intensity. Economic growth now generates fewer jobs in
the non-farm sector (industry including manufacturing, construction, mining and utilities
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plus services sector) than it used to earlier.

2
https://www.topperlearning.com/answer/what-do-you-understand-by-disguised-unemployment-explain-
with-an-example-each-from-the-urban-and-rural-areas/h2mqwymm

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CAUSES OF UNEMPOYMENT

 HIGH POPUALTION GROWTH: The rapid increase in population of our country

during the last decade has further worse the unemployment problem in the country. Due
to rapidly increasing population of the country, a dangerous situation has arisen in which
the magnitude of unemployment goes on increasing during each plan period.

 JOBLESS GROWTH: Although India is a developing country, the rate of growth is

inadequate to absorb the entire labour force in the country. The opportunities of
employment are not sufficient to absorb the additions in the labour force of the country,
which are taking place as result of the rapidly increasing unemployment in India.

 INEFFICIENT AGRICULTURAL AND INDUSTRIAL SECTORS: Industrialisation

is not rapid in our country and industrial labour finds few job opportunities. As enough
other employment opportunities are not available, agriculture is the principal area of
employment in our country. Thus, pressure on land is high, as about 2/3 of the labour
force is engaged in agriculture. Land is thus overcrowded and a large part of the work
force is underemployed and suffer from disguised unemployment.

 INAPROPRIATE EDUCATION SYSYTEM: After remaining at schools and colleges

for a number of years men and women come out in large numbers, having gained neither
occupational nor vocational training nor functional literacy from which all future skilled,
educated professional, and managerial manpower is drawn.

 INAPPROPRIATE TECHNOLOGY: In India, while capital is a scarce factor, labour

is available in abundant quantity. However, not only in industries, but also in agriculture
producers are increasingly substituting capital for labour. On account of abundance of
labour, this policy is resulting in large unemployment.

 WEAKNESSES IN PLANNING TECHNIQUES: The growth strategy underlying our

plans has been found to be faulty. Lack in infrastructure development and poor labour-
intensive techniques planning has made unemployment a severe issue in our Indian
economy.

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Measures to Solve:

India, as an economy, has all the above features as a developing country. From a holistic
point of view, several solutions of tackling disguised unemployment can be:

1. Educating the masses for the population control measure through family planning
programmes.
2. Making credit available to the people for self-employment.
3. Providing skill development and entrepreneurship programmes.
4. Encouraging mobility of the workforce from rural to urban areas.

Measures Taken by the Government

The Indian Government has taken several measures to curb disguised unemployment and
unemployment as a whole. Many self-employment schemes have been launched and older
ones modified to curb this social problem. Some of the Government’s efforts have been:

1. MNREGA and RAY: The MNREGA, Mahatma Gandhi National Rural Employment
Guarantee Act, passed in the year 2005, was introduced as a social security measure
to guarantee the ‘right to work’. Essentially, it provided at least 100 days of wage
employment in a year to each household’s adult members. RAY (Rajiv Awas
Yojana), on the other hand, provides for affordable housing for the slum dwellers in
the urban areas, thereby reducing the burden on the unemployed.
2. The National Policy on Voluntary sector (2007) envisages government collaboration
with the voluntary organizations in poverty alleviation, skill promotion and
entrepreneurship development.
3. SHGs (Self-Help Groups): Self-help groups are being promoted with broad anti-
poverty agendas. Women empowerment and increased self-employment are the
objectives embedded in the activities of these groups. Such groups have proved to be

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phenomenal in Andhra Pradesh and Kerala. Thus, this model is being replicated in the
other states of the country.

CONCLUSION AND SUGGESTION

In her well-known essay 'Disguised Unemployment' Joan Robinson coined this term
for a situation widely observed in the Great Depression in which men, thrown out of
regular employment, crowded into occupations like carrying bags, rendering small
services or selling matches in the Strand. The reasoning underlying her argument can
be brought out by a simple twosector model: in one sector money wages are rigid
downwards; in the other, where self-employment is common, incomes are flexible. In
competitive full employment equilibrium, the marginal productivity of labor is the
same in both sectors. If then a fall in aggregate demand below the full employment
level occurs, men will be thrown out of work in the rigid wage sector, but, rather than
become unemployed, will move into the flexible income sector. Money income per
man in this sector will fall as more men are accommodated to spread a smaller work
load. Productivity differentials (measured in terms of man-years, man-weeks, or man-
days, but not in terms of manhours, for productivity of hours not worked is not
meaningful, though it is not clear how hours spent waiting for work, or in search of
work, should be counted) will increase, but no visible unemployment will appear. The
difference between a situation of general low labor productivity (say due to absence
of skills) and a situation of disguised unemployment in this sense is that a rise in the
level of effective demand will shift workers back into the high-productivity, rigid-
wage sector and remove the disguised unemployment. The workers are adapted to the
requirements in this sector and, if the time spent in the flexible sector has not been too
long, so that they have not forgotten their skills, have remained well fed and healthy
and have not been demoralized, a rise in effective demand is a sufficient remedy.
Although the same term has been used, it is immediately obvious that the situation in
the rural sector of developing countries is quite different from that described by Joan
Robinson. It is true that the rural subsistence sector, in which smallholdings are
cultivated by families, resembles the flexible income sector in that it is capable of
spreading a constant or slowly growing work load and product over a rapidly growing

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 number of people. But it is not true that an increase of effective demand would, by
itself, absorb the excess population in industry. Clearly a series of additional measures
would be necessary. Machinery and equipment would have to be provided,
infrastructure would have to be constructed, a workforce would have to be trained,
disciplined and educated in cooperation, nutrition and health may have to be
improved, public services would have to be provided, objections to factory work
would have to be removed.3

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https://link.springer.com/chapter/10.1007/978-1-349-08633-7_27

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