Q.What is disguised unemployment? Give an example.

Disguised unemployment is a subtle form of unemployment where people appear to be working, but their work does not actually add anything extra to output. …

Disguised unemployment refers to a situation in which more workers are engaged in an activity than are genuinely necessary to carry it out. What makes this form of unemployment 'disguised' is that the workers involved appear, on the surface, to be employed — they are present and working — but their actual contribution to total output (their marginal productivity) is effectively zero, or very close to it. If some of these workers were removed from the activity, total output would remain largely unchanged.

This is a particularly common feature of Indian agriculture, where a family's landholding may only require, say, two or three working members to cultivate effectively, but four or five family members end up working on it because there is no alternative employment available to the additional members elsewhere in the economy. All of them appear occupied, but several are not adding meaningfully to the farm's output — they are unemployed in an economic sense even though they are not idle in a literal sense. …

Students sometimes confuse disguised unemployment with simply being 'busy but poorly paid.' The defining feature is not low pay but zero (or near-zero) margin …