Full employment

economic-dictionary

Full employment is a situation where all individuals in a country, who are able to work and who want to do so, are effectively working either as employees of a company or organization or creating their own.

When full employment occurs, the demand for labor is equal to the supply so that the labor market is in perfect balance. This means that in a country with full employment all workers who belong to the labor force and are looking for work find it. However, as we will see below, when there is full employment, certain people remain unemployed, and this is known as frictional unemployment.

Characteristics of full employment

The concept of full employment is rather theoretical since it is practically impossible to find a real case where unemployment is exactly zero. This occurs because in practice the labor market presents many imperfections (information asymmetries, regulations that affect the incentives of workers and companies, etc.).

Added to the above is the fact that the labor market is dynamic and it is normal for there to be a certain level of frictional unemployment since workers need time to find the right job (search for offers on websites or newspapers, send their data , participate in interviews, etc). That is, there is supply and demand, but it takes a while to find equilibrium.

On the other hand, there are constantly changes in the workforce with people entering or leaving the labor market for different reasons such as: illness, other interests, moving to another country, starting new studies, etc.)

There may also be changes in the factors that determine business demand for labor (technological changes, changes in consumer preferences, etc.). These changes can lead to structural unemployment where, although there is a demand for work, the supply does not have the desired skills.

Considering the above, many times it is believed that there is full employment in a country when its unemployment rate is mainly explained by frictional unemployment.

The goal of full employment

For a country, reaching full employment is a desirable goal for both its economic, social and even moral consequences. However, there are divergent views on how to approach this goal.

On the one hand, Keynesianism ensures that the State must intervene in times of crisis by making public investments that generate employment and help to resume the path of growth. Keynesianism does not believe in the automatic adjustment of the supply and demand of labor.

On the contrary, the current of liberalism indicates that the best way to achieve full employment is through free competition. State intervention would be limited to ensuring a reliable and stable legal framework for the development of entrepreneurship.

It should also be mentioned that many countries consider that work is a right (rather from the moral point of view) and that the State must include full employment as a priority objective.

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