Nurkse’s thesis of disguised unemployment is a concept in development economics that focuses on the inefficient allocation of labour in underdeveloped economies, particularly in the agricultural sector. Disguised unemployment occurs when more people are employed in a sector than are actually needed to sustain its output, meaning the marginal productivity of the excess labour is zero or close to zero. This phenomenon is commonly observed in traditional agricultural economies, where large portions of the population are engaged in subsistence farming. Due to outdated farming practices, limited technological advancements, and the absence of industrial opportunities, there tends to be an oversupply of labour in agriculture. In such cases, removing some of the surplus labour does not reduce the total agricultural output, indicating that these workers are effectively underemployed.
Nurkse highlighted that this surplus labour represents a potential resource for economic development. Since the marginal productivity of the excess workers in agriculture is negligible, they can be redirected to more productive sectors such as manufacturing or infrastructure development without adversely affecting agricultural production. This idea aligns with his broader theory of balanced growth, which advocates for the simultaneous development of multiple sectors to stimulate economic progress. By transferring labour from agriculture to industry, underdeveloped economies can foster capital formation, which is essential for industrialization and overall growth.
To operationalize this transition, economic policies should focus on mechanisms to absorb surplus labour effectively.
One approach is to redirect these workers into infrastructure projects, such as building roads, schools, and factories, which not only provide employment but also lay the foundation for future economic growth.