Question

In: Economics

Is the definition of full employment the optimal natural rate of unemployment (3%) or is it...

Is the definition of full employment the optimal natural rate of unemployment (3%) or is it attainable at the current natural rate of unemployment according to the 2018 1 Q rate of 4.607%?

Solutions

Expert Solution

Full Employment is attainable at the current natural rate of unemployment according to the data given i.e. 2018 1Q rate of 4.607%.

When all the available resources of a country are being used efficiently, it results in full employment. Full employment exists when there is no cyclical unemployment but frictional and structural unemployment exists. Cyclical unemployment rises and falls within the course of the business cycle i.e. the unemployment rate rises when there is recession and the unemployment rate falls when there is inflation. So, full employment can't exists when there is recession in an economy. Structural unemployment arises when the workforce don't have the skills to perform the required tasks in the economy. Frictional unemployment arises when people are changing jobs and hence they are unemployed for a short period of time.

On the other hand, the natural rate of unemployment exists in all countries and it also takes into account the frictional and structural unemployment but not cyclical unemployment. In short, the economy is considered to be at full employment when the unemployment rate is equal to the natural rate of unemployment.


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