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Disguised unemployment and unnecessary jobs – Prof. Sriram Prabhakar

27 Dec, 2022.

Disguised unemployment refers to a situation wherein labourers employed in a task cannot utilize their full potential, and their overall productivity remains low. Analysts try to identify this unemployment loophole in the economy to identify poor allocation of resources and reallocate them efficiently to increase total output.

It is also known as hidden unemployment, highlights low marginal productivity or inefficiencies in the labour force. It occurs when workers are a part of the labour force but function beneath their actual potential. A high level of hidden unemployment is a grave concern for an economy as it can hurdle the realization of higher GDP or total output.

There are many causes of disguised unemployment, but these underlie a few broad ones. Firstly, skilled labourers do unskilled work requiring low or no skill set. Thus, they cannot utilize their potential skill set at work. 

Secondly, low productivity is also prevalent because too many labourers are employed to complete a task that requires only a few workers. As a result, some workers’ potential remains idle or irrelevant in the total output. Consequently, their work does not change the total output. For instance, disguised unemployment in agriculture, especially in developing countries, reflects marginal productivity to be zero.

Thirdly, causes of disguised unemployment include the inability of the policymakers to maintain data on the poor or low productivity of labourers. It is because, in an economy, hidden unemployment can be present in any segment of workers. It is because they might have lower productivity or are doing jobs where in they are not using their full potential. Thus, it is mostly unnoticed or not counted in the unemployment statistics of an economy. 

An example of disguised unemployment is the informal sector, where abundant skilled and unskilled labourers are available. Such labour markets include construction, domestic, agricultural workers, or platform and gig workers. However, their true potential remains unrecorded in the unemployment data. 

Especially in developing countries, governments cannot maintain such an intrinsic data set on hidden unemployment. The labour market is huge in developing economies, and the governments lack adequate resources to maintain this data. As a result, this problem remains outside adequate policy formulation and implementation, especially in rural areas. 

Hidden unemployment can occur in any segment of the economy where labour has lower productivity due to a job beneath their potential. However, such scenarios occur mostly in developing countries where the labour force has low skill sets and few job and training opportunities. Thus, too many people are doing too few jobs. 

Disguised unemployment exists when part of the labour force is either left without work or is working in a redundant manner such that worker productivity is essentially zero. It is unemployment that does not affect aggregate output. An economy demonstrates disguised unemployment when productivity is low and too many workers are filling too few jobs.

Huge swathes of people spend their days performing tasks they secretly believe do not really need to be performed. It’s as if someone were out there making up pointless jobs for the sake of keeping all employees working. The moral and spiritual damage that comes from this situation is profound. It is a scar across the employees’ collective soul. Yet virtually no one talks about it.

How can one even begin to speak of dignity in labour when one secretly feels one’s job should not exist?

We need to ask ourselves; not just how did such a large proportion of our workforce find themselves labouring at tasks that they themselves consider pointless, but also why do so many people believe this state of affairs to be normal, inevitable—even desirable? More oddly still, why, despite the fact that they hold these opinions in the abstract, and even believe that it is entirely appropriate that those who labour at pointless jobs should be paid more and receive more honour and recognition than those who do something they consider to be useful, do they nonetheless find themselves depressed and miserable if they themselves end up in positions where they are being paid to do nothing, or nothing that they feel benefits others in any way?

How do such jobs actually happen? It will also mean asking deep historical questions, like, when and how did we come to believe that creativity was supposed to be painful, or, how did we ever come up with the notion that it would be possible to sell one’s time? And finally, it will mean asking fundamental questions about human nature.

Let’s ask ourselves, what is a unnecessary job. Look at the illustration below.

The German military has a subcontractor that does their IT work. The IT firm has a subcontractor that does their logistics. The logistics firm has a subcontractor that does their personnel management, and I work for that company. Let’s say soldier A moves to an office two rooms farther down the hall. Instead of just carrying his computer over there, he has to fill out a form. The IT subcontractor will get the form, people will read it and approve it, and forward it to the logistics firm. The logistics firm will then have to approve the moving down the hall and will request personnel from us. The office people in my company will then do whatever they do, and now I come in. I get an email: “Be at barracks B at time C.” Usually these barracks are one hundred to five hundred kilometres away from my home, so I will get a rental car. I take the rental car, drive to the barracks, let dispatch know that I arrived, fill out a form, unhook the computer, load the computer into a box, seal the box, have a guy from the logistics firm carry the box to the next room, where I unseal the box, fill out another form, hook up the computer, call dispatch to tell them how long I took, get a couple of signatures, take my rental car back home, send dispatch a letter with all of the paperwork and then get paid. So instead of the soldier carrying his computer for five meters, two people drive for a combined six to ten hours, fill out around fifteen pages of paperwork, and waste a good four hundred euros of taxpayers’ money.

In short, this is an analogy of how things are today.


Macro economics

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