Readers Question: what is the difference between disguised unemployment and involuntary unemployment
Definition of disguised unemployment. This is when people do not have productive full-time employment but are not counted in the official unemployment statistics. This may include:
- People with sickness/disability benefits (but, would be able to do some jobs)
- People doing part-time work. (sometimes referred to as ‘underemployment’)
- People forced to take early retirement and redundancy. (no longer counted as in labour force)
- Disguised unemployment could also include people doing jobs that are completely unproductive, i.e. they get paid but they don’t have a job. In a developing economy like China, many workers in agriculture may be adding little if anything to overall unemployment, therefore this type of employment is classed as disguised unemployment.
- See: The true level of unemployment
Definition of Involuntary Unemployment
This is when people are unable to work because there are insufficient jobs at the current wage available in an economy. This could be due to wages kept above the equilibrium (e.g. by Trade unions). In this situation, people may work for lower wages, but they are not able to.
Keynes argued involuntary unemployment was due to insufficient demand. Even a cut in wages would not solve unemployment because it would only reduce AD further.
Involuntary unemployment would be measured by government statistics. E.g. in the 1930s, unemployment rose to 25% in the UK. This was involuntary unemployment.
- Underemployment – when people are working, but are doing fewer hours than they would like.