What Is Full Employment?
Full employment is often more of an ideal than a realistic outcome of economic policy. This is because when there are more people in work, employers have to compete with other employers and thus wages go up, leading to things being worth less, a.k.a inflation. Central banks’ knee jerk reaction to this is to raise interest rates, which slows the economy down, but of course this can also have the inverse effect of increasing unemployment again. This shows how full or just for the sake of argument, high employment can have disadvantages, which politicians don’t want to be straight about, so they use it as an ideal that they don’t actually have to specify.
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But of course, you want an answer to the question, so let’s try to find one. Remember to watch the whole video to get the answer to the question. The first important thing to do is understand the different types of unemployment, because some people are unemployed by choice, for example students, pregnant mothers, or retirees, and so on. As well as this, understanding different types of unemployment will show us why some economists believe certain types to be inevitable, thus it’s not worth sorting them out in an attempt to get full employment.
Firstly there is structural unemployment, this is when there is a shift in the economy, causing a mismatch between skills and what employers want, e.g. us moving towards a service economy whilst industries like coal mining become obsolete. Then there is institutional unemployment which is caused by interferences in the market by the government, for example minimum wage laws and discriminatory hiring.
Then there is frictional unemployment, which most economists do not interpret as a problem,
it represents people voluntarily switching between jobs and are thus temporarily unemployed. Cyclical unemployment is again something that economists represent as inevitable, it reflects the natural rises and falls in the economy, like ice cream sellers who are unemployed in the winter, or students who work purely during the summer and are then unemployed during the rest of the year when they are studying.
Certain people however, disagree with this view that there is a certain unemployment is inevitable and that resultantly there is a ‘natural level’ of unemployment. Opponents of this idea draw attention to the predominance in western economies of the Austrian school of economic theory, which tends to prioritise curbing inflation over curbing unemployment which they represented as inevitable at a certain level. Opponents of the Austrian school argue that there is never a ‘natural’ level of unemployment, and its existence causes skills to be wasted for the unemployed as well as inequality to increase. Furthermore, these people argue that skills are currently being wasted in the modern economic system due to underemployment, which is where skilled individuals are stuck in low skilled, precarious work.
To conclude I would agree with the sources I’ve read who say full employment should be called maximum unemployment, the idea that as many people get a job who want a job, without it affecting inflation. Most governments measure this by using the non accelerating inflation rate of unemployment which measures the lowest unemployment can go before negatively affecting inflation, and is usually unemployment at about 5%. So, that’s my answer to the question of what full employment is.
Sources: https://docs.google.com/document/d/e/...
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