Problem 5 What does it mean to say that th... [FREE SOLUTION]

Chapter 6: Problem 5

What does it mean to say that the country is operating at full employment?

Short Answer

Expert verified

To say a country is operating at full employment means that the only existing unemployment is structural and frictional. This doesn't mean there is no unemployment but that there is no cyclical or deficient-demand unemployment. Everyone who wants to work can find a job, though some level of unemployment will exist due to the time it takes workers to find new jobs (frictional unemployment) or due to a mismatch between the skills workers have and the skills required (structural unemployment).

Step by step solution

Understanding Full Employment

Full employment is a term used in economics to refer to the level of employment rates where there is no cyclical or deficient-demand unemployment. It is a situation in which anyone who wants to work can find a job. It does not imply zero unemployment.

Explaining Structural Unemployment

Structural unemployment is a form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (the job market). It occurs when there is a long-lasting change in the structure of the economy.

Explaining Frictional Unemployment

Frictional unemployment is another form of unemployment, which occurs when workers are between jobs. When workers lose their current job and are in the process of finding a new job, this unemployment is referred as frictional unemployment. Both frictional and structural unemployment occur naturally in any economy, even one that is considered to be at 'full employment'.