Also known as hidden unemployment, this refers to a situation where labour that is employed in a job is not actually utilised for the production of goods and services. In other words, such employment does not contribute to the output of an economy and is thus akin to a form of unemployment. Sometimes disguised unemployment could simply be a form of underemployment wherein the skills of a labour force are not utilised to their full capacity. In many other cases, however, such unemployment could simply be due to the lack of other alternative avenues of production where the surplus labour could be employed profitably.

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