Full Employment

Full employment refers to a situation when all those who are able to work and are willing to work (at the existing wage rate) are getting work. It is a situation when, corresponding to a given wage rate, demand for labor force is equal to supply of labor force, and the labor market is cleared (it is in a state of equilibrium).

Two situations must be noted in this definition:

1) Full employment does not mean that everyone is employed. People who are voluntarily unemployed, such as ‘idle rich’, are not employed because they are not willing to work. They are not treated as unemployed.

2) There might be some amount of frictional unemployment owing to technological improvements, decrease in demand for the product of some industries, or because some person may be changing jobs or because of structural changes in the economy. It may take some time for these persons to get a new job. So, these people may remain temporarily unemployed.

Therefore, full employment is said to exist in an economy even if there prevails frictional unemployment.

If 3 to 4 percent of the labor force is unemployed (frictional unemployment), then the economy is said to be operating at full employment. But if the numbers of unemployed persons are greater than 3 to 4 percent of the labor force, only then we say that full employment does not prevail.

So it is important to note as a student of economics, a situation of full employment never implies a situation of ‘Zero unemployment’.

There always exists some degree of unemployment, called ‘natural unemployment’ as the two situations discussed above.

So full employment is a situation in which everyone who wants to work is working except for those who are frictionally and structurally unemployed.