Question

When the economy is at its full employment level, is the unemployment rate zero? Justify your answer.

Answer 1

In practice, an economy will never have zero unemployment because there is inevitably some frictional unemployment. This is the unemployment where people take time to find the best job for them. Frictional unemployment is not necessarily a bad thing. It is better people take time to find a job suitable for their skill level, rather than get the first job that comes along. Generally, you may expect frictional unemployment to cause an unemployment rate of 2-3%. Therefore, some economists may claim that unemployment of less than 3% indicates ‘full employment’ – or at least very close.

there are 3 kinds of unemployment.

The three kinds are structural (people lose jobs because what they are making is no longer wanted), frictional (people are "between" jobs or just starting to look), and cyclical (people are out of work because consumers can't afford the stuff they make). Of these, the first two are seen as "good" kinds of unemployment. Therefore, the term full employment refers to a situation in which there is no cyclical unemployment. zerounemployment would mean that there is no structural or frictional unemployment.