What do you mean by 'disguised unemployment'? Do you think that it can be used as a source of capital formation? Examine its limitations.

Model Answer:
A disguisedly unemployed person is the one who seems to be employed but actually he is not. His contribution to the total output is zero or negligible. When more people are engaged in a job than actually required, a state of disguised unemployment is created. It is mostly seen in rural areas, especially in agriculture sector.
Prof. Nurkse an Estonian international economist, first recognized disguised unemployment as a saving potential. As per him; hidden saving in disguised unemployment can be used for capital formation in the under-developed countries. This can be done as follows: Surplus labor can be withdrawn from agriculture and utilized for capital formation activities like road building, irrigation projects, railway construction, building of houses , factories etc. It is assumed that when surplus labor is withdrawn from agriculture there is surplus food which saws being consumed by the people who have not been withdrawn from agriculture. Nurkse asked to feed surplus labor transferred from agriculture to capital formation projects should be given their own food that they left behind in the farm families. Since the capital formation by the surplus labor transferred from agriculture is the result of saving from agriculture and not from any other sector or of foreign aid. So, the disguised unemployment can lead to capital formation.

Question for UPSC Mains:
What do you mean by ‘disguised unemployment’? Do you think that it can be used as a source of capital formation? Examine its limitations.

Published: February 7, 2016 | Modified:June 27, 2019

Comments