Full Employment

Definition

The goal of full employment is closely related to the goal of efficiency in resource allocation. In this case, we are examining the efficiency with which one particular resource is used – labour.

Full employment is a situation in which all of those people who are both willing and able to find work are able to do so. In reality, we must allow for a small level of unemployment to exist, as to achieve an unemployment rate that is too low would result in negative consequences such as inflation.

As a result, the goal for full employment is to maintain an unemployment rate that is as close as possible to the NAIRU. The NAIRU is the Non-Accelerating Inflationary Rate of Unemployment. In simple terms, it is the lowest rate of unemployment that the Australian economy can sustain without leading to inflation. This is also referred to as the “natural” rate of unemployment.

There are several different types of unemployment of which you will need to be aware:

1. Cyclical Unemployment – This is unemployment that occurs due to fluctuations in the business cycle. When there is a downturn in the business cycle the rate of cyclical unemployment will be high. The downturn is referred to as a recession, and a recession occurs due to insufficient demand in the economy. As such, cyclical unemployment is associated with demand factors.
   
   
2. Structural Unemployment – On the other hand, structural unemployment is associated with supply side factors in the Australian economy. When a business is forced to restructure, it is likely that some people will lose their jobs. For example, many government business enterprises have been restructured due to microeconomic reforms in recent years, and as a result many of the former employees in those businesses have become structurally unemployed.
   
   
3. Seasonal Unemployment – Unemployment that occurs due to the change in season. For example, fruit pickers are only needed at certain times of year, as are ski instructors.
   
   
4. Frictional Unemployment – This is the situation in which a person is between jobs. When moving from one position to another it is possible that a person may go through a short period of unemployment.
   
   
5. Hard-Core Unemployment – Some people are unlikely to receive work, even though they may desire a position. For example, it is possible that due to a long prison sentence a person will find it difficult to find the type of position that they would otherwise like.

Seasonal, frictional and hard-core unemployment are all considered to be part of the “natural” rate of unemployment. As such, it is unlikely that any government will implement policies in an attempt to solve these problems. However, it is very likely that the federal government will respond quickly to any increase in cyclical unemployment.

There are two other "types" of unemployment that you should know.  In actual fact, although the terms imply that they are types of unemployment, they are really weaknesses associated with the measure of unemployment that we use.

1. Hidden Unemployment – This refers to those people who do not have a job, and who would like to get a job, but due to other circumstances they are not actively seeking a job. As a result, they do not appear in the unemployment statistic; the fact that they are unemployed is “hidden”. The most common reason for this is when the economy is performing poorly. At times like this many people believe that there is no point seeking a job, as they are unlikely to find one anyway.
   
   
2. Disguised Unemployment – In this situation the person involved DOES have a job, and yet they are still not considered to be fully employed. This is because they are either working less than they would like each week, or they are working in a position in which the skills that they have are not being fully utilised. These people do not appear as unemployed, because they have a job. And yet they may still be seeking a job elsewhere.

Current Page: Definition 1 2 3 4 5 6 7 8 9 10 11 12 13

E-mail Mr Wood