What Is Full Employment?

This is an excerpt from Wikipedia. Please note the much maligned John Maynard Keynes position on full employment.

Full employment

From Wikipedia, the free encyclopedia

Diagram of macroeconomic circulation. L_S ≤ L_D is the full employment situation, one in which the rate of unemployment is zero or negative (corresponding to a labor shortfall).

In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so. It is defined either as 0% unemployment, literally, no unemployment (the rate of unemployment is the fraction of the work force unable to find work), as by James Tobin,^[1][2] or as the level of employment rates when there is no cyclical unemployment.^[3] It is defined by the majority of mainstream economists as being an acceptable level of natural unemployment above 0%, the discrepancy from 0% being due to non-cyclical types of unemployment. Unemployment above 0% is advocated as necessary to control inflation, which has brought about the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU); the majority of mainstream economists mean NAIRU when speaking of "full" employment.

employability

Economic concept

What most neoclassical economists mean by "full" employment is a rate somewhat less than 100% employment, considering slightly lower levels desirable, others, such as James Tobin, vehemently disagree, considering full employment as 0% unemployment:^[1]

“As a young professor I did a paper where I analyzed the optimal unemployment rate,” said Joseph Stiglitz, a professor atColumbia University in New York, who knew Tobin at Yale. “Tobin went livid over the idea. To him the optimal unemployment rate was zero.”

Rates of unemployment substantially above 0% have also been attacked by John Maynard Keynes:

"The Conservative belief that there is some law of nature which prevents men from being employed, that it is 'rash' to employ men, and that it is financially 'sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts…Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense."

– J.M. Keynes in a pamphlet to support Lloyd George in the 1929 election.

20th century British economist William Beveridge stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% and 13%, depending on the country, time period, and the various economists' political biases.

Before Friedman and Phelps, Abba Lerner (Lerner 1951, Chapter 15) developed a version of the NAIRU. Unlike the current view, he saw a range of "full employment" unemployment rates. He distinguished between "high" full employment (the lowest sustainable unemployment under incomes policies) and "low" full employment (the lowest sustainable unemployment rate without these policies).

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