Lesson 7 of 14 · free to read
Full employment is defined as an unemployment rate of about 94 to 96 percent, with frictional, structural, and cyclical unemployment representing different reasons workers are temporarily without jobs.
You just graduated and are job hunting, but you're not worried—you know a position is waiting for you next month. Meanwhile, your friend in another city can't find work because the local factory closed and she lacks the skills new employers want. Why is one of you 'unemployed' and the other not?
The idea
Full employment means about 94–96% of available workers have jobs; the rest are unemployed for frictional, structural, cyclical, or seasonal reasons.
A key macroeconomic goal is full employment—having jobs for all who want to and can work. But full employment doesn't mean 100% employment. Some people choose not to work (to attend school or raise children), and others are temporarily between jobs. So the government defines full employment as the situation when about 94 to 96 percent of those available to work actually have jobs. During the 2007–2009 recession, the U.S. unemployment rate peaked at 10% in October 2009; today it hovers around 4%.
Definition
unemployment rate
The percentage of the total labor force that is not working but is actively looking for work; it excludes discouraged workers—those not seeking jobs because they think no one will hire them.
It's the share of people who want a job and are searching for one but haven't found it yet.
To see how close we are to full employment, the government measures the unemployment rate. Each month the U.S. Department of Labor releases these statistics, which help us understand how well the economy is doing. Economists classify unemployment into four types: frictional, structural, cyclical, and seasonal.
Vocabulary· 2 terms
Which type fits each scenario
Definition
cyclical unemployment
Unemployment that occurs when a downturn in the business cycle reduces the demand for labor throughout the economy; in a long recession it is widespread, and even people with good job skills can't find jobs.
Job losses caused by an economic downturn—when the whole economy slows, fewer workers are needed.
The four types are of small consolation to someone who is unemployed, but they help economists understand the problem. Frictional unemployment is always present and has little impact on the economy. Structural unemployment often requires retraining programs. Cyclical unemployment can be partly counteracted by government programs that boost the economy. Seasonal unemployment—tied to seasons like holiday retail or farming—is the fourth type, covered in the Cyclical Unemployment and Inflation unit.
Easily confused
Both frictional and structural unemployment are unrelated to the business cycle, so they might seem the same.
Frictional unemployment is short-term and voluntary—people are between jobs by choice. Structural unemployment is involuntary, caused by a mismatch between workers' skills and available jobs.
The distinction matters because frictional unemployment is harmless and always present, while structural unemployment signals a deeper problem that may require retraining.
Now apply the definitions to a real scenario.
Unemployment is a global concern, not just a U.S. one. High youth unemployment (workers 25 and younger) in Spain, Italy, and Greece has fueled protests as governments struggle to put young people back to work. The UK's exit from the European Union may also shift jobs to central European countries like Poland, affecting unemployment rates there.
Recap
Say each point to yourself, then tap it to check.
Advertisement
Clear the page · $6.67/moSource
Adapted from Introduction to Business, © 2018 OpenStax, Rice University
Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, and James C. Hyatt
Licensed under CC BY 4.0. This course is an adaptation, not the original work.
Access for free at openstax.org/details/books/introduction-business