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Disadvantages of Full Employment Definitions | Economics Blog

Disadvantages of Full Employment Definitions


explain 3 different ways in which full employment can occur and identify any disadvantages of each?

In previous post I identified 4 different way to define full employment

Optimal Level of Unemployment

Rather abitary; there could be disagreement on what constitutes the ‘optimal level of unemployment’. For example, how much frictional unemployment is necessary in a modern economy.

Full Capacity and Full Employment.

The problem with this definition is that to attain full capacity in an economy may lead to inflation and a boom and bust economic cycle. In practise it is hard to attain full capacity because firms usually operate at less than 90% of capacity.

NAIRU

The Nairu indicates the level of unemployment that is consistent with low inflation. However, this can involve supply side unemployment such as structural and frictional unemployment. This level of unemployment could be quite high. Also keynesians dispute the Monetarist version of the Phillips curve arguing that long term unemployment could be due to demand deficiency.

 

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