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In [[economics]], full employment has more than one meaning. The majority of [[economists]] believe the unemployment rate is greater than 0% when there is full employment, correspond to the technical term Non-Accelerating Inflation Rate of Unemployment ([[NAIRU]]). In common-sense terms, the rate of unemployement is difference between those ''actively seeking employment'' and the availability of matching employments. Since neither is the full workforce either fully engaged or actively seeking some employment nor are the requirementos of the employments necessarily matching the workers, what should practically be considered "full employment" is a matter of contention. | In [[economics]], full employment has more than one meaning. The majority of [[economists]] believe the unemployment rate is greater than 0% when there is full employment, correspond to the technical term Non-Accelerating Inflation Rate of Unemployment ([[NAIRU]]). In common-sense terms, the rate of unemployement is difference between those ''actively seeking employment'' and the availability of matching employments. Since neither is the full workforce either fully engaged or actively seeking some employment nor are the requirementos of the employments necessarily matching the workers, what should practically be considered "full employment" is a matter of contention. Thus, "full employment" is at least both an economic and a political concept. | ||
= Economic | = Economic Concept = | ||
== Historical Development == | == Historical Development == | ||
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20th century British economist [[William Beveridge]] stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% & 7%, depending on the country, time period, and the various economists' political biases. | 20th century British economist [[William Beveridge]] stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% & 7%, depending on the country, time period, and the various economists' political biases. | ||
== | == Technical Terms == | ||
=== Long | === Long Run Aggregate Supply === | ||
The concept of full employment has so far been used in conjunction with the long run LRAS curve, where long run potential output is also the full employment level of output. Full employment does not mean that there is 'zero unemployment', but rather that all of the people willing and able to work have jobs at the current wage rate. Full employment is the quantity of labour employed when the labour market is in equilibrium. | The concept of full employment has so far been used in conjunction with the long run LRAS curve, where long run potential output is also the full employment level of output. Full employment does not mean that there is 'zero unemployment', but rather that all of the people willing and able to work have jobs at the current wage rate. Full employment is the quantity of labour employed when the labour market is in equilibrium. | ||
=== | === NAIRU === | ||
The following should be understood in discussions of NAIRU: Governments that follow it are attempting to keep unemployment at certain levels (usually over four percent, and as high as ten or more percent) by keeping interest rates high. As interest rates increase, more bankruptcies of individuals and businesses occur, meaning less money to hire staff or purchase goods (the making and distributing of which requires workers, which means jobs). It might also be noted that the main cause of inflation is not high employment, but rather the ability of banks to make money with little to no backing with things of value (commodities such as gold and silver are some examples), thus flooding the market with money and decreasing the value of each dollar already issued in the process, assuming the economy has not kept up to this increase in issued loans. Economists such as Milton Friedman <ref>"A Monetary and Fiscal Framework for Economic Stability", 1948, American Economic Review, Vol. 38, No. 3 (Jun., 1948), pp. 245-264</ref> and Dr. Ravi Batra have theorized ways that a modern economy could have low inflation and near full employment (as in close to 100% of those who are not students and are healthy enough to work, and who wish to work at any given point in time), as of yet these have yet to be widely disseminated through the press or introduced by most governments. Paul Martin - former finance minister and past Prime Minister of Canada - once held that full employment could be achieved, yet let go of this idea after gaining power. For more on this see the expose "Shooting the Hippo" by [[Linda McQuaig]], author and former columnist for many of Canada's top newspapers. | |||
Friedman's view has prevailed so that in much of modern [[macroeconomics]], full employment means the lowest level of unemployment that can be ''sustained'' given the structure of the economy. Using the terminology first introduced by [[James Tobin]] (following the lead of [[Franco Modigliani]]), this equals the '''N'''on-'''A'''ccelerating '''I'''nflation '''R'''ate of '''U'''nemployment ([[NAIRU]]) when the real [[gross domestic product]] equals [[potential output]]. This concept is identical to the "natural" rate but reflects the fact that there is nothing "natural" about an economy. | Friedman's view has prevailed so that in much of modern [[macroeconomics]], full employment means the lowest level of unemployment that can be ''sustained'' given the structure of the economy. Using the terminology first introduced by [[James Tobin]] (following the lead of [[Franco Modigliani]]), this equals the '''N'''on-'''A'''ccelerating '''I'''nflation '''R'''ate of '''U'''nemployment ([[NAIRU]]) when the real [[gross domestic product]] equals [[potential output]]. This concept is identical to the "natural" rate but reflects the fact that there is nothing "natural" about an economy. | ||
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The level of the NAIRU thus depends on the degree of "supply side" unemployment, i.e., joblessness that can't be abolished by high demand. This includes [[unemployment types#Frictional unemployment|frictional]], [[unemployment types#Structural unemployment|structural]], [[unemployment types#Classical unemployment|classical]], and [[unemployment types#Marxian unemployment|Marxian]] [[unemployment]]. | The level of the NAIRU thus depends on the degree of "supply side" unemployment, i.e., joblessness that can't be abolished by high demand. This includes [[unemployment types#Frictional unemployment|frictional]], [[unemployment types#Structural unemployment|structural]], [[unemployment types#Classical unemployment|classical]], and [[unemployment types#Marxian unemployment|Marxian]] [[unemployment]]. | ||
=== Phillips Curve === | === Phillips Curve === | ||
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=External sources= | |||
* [http://www.oecd.org/dataoecd/27/46/18464874.pdf The OECD on measuring the NAIRU] | * [http://www.oecd.org/dataoecd/27/46/18464874.pdf The OECD on measuring the NAIRU] | ||
* Devine, James. 2004. The "Natural" Rate of Unemployment. In Edward Fullbrook, ed., ''A Guide to What's Wrong with Economics'', London, UK: Anthem Press, 126-32. | * Devine, James. 2004. The "Natural" Rate of Unemployment. In Edward Fullbrook, ed., ''A Guide to What's Wrong with Economics'', London, UK: Anthem Press, 126-32. | ||
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* Staiger, Douglas, James H. Stock, and Mark W. Watson. 1997. The NAIRU, Unemployment and Monetary Policy. ''Journal of Economic Perspectives''. 11(1) Winter: 33-49. | * Staiger, Douglas, James H. Stock, and Mark W. Watson. 1997. The NAIRU, Unemployment and Monetary Policy. ''Journal of Economic Perspectives''. 11(1) Winter: 33-49. | ||
=References= | |||
<references/> | <references/> | ||
