Meaning of full employment in an economy

Full employment refers to a situation in which every able bodied person who is willing to work at the prevailing rate of wages is, in fact, employed. Alternatively, it is a situation when there is no involuntary unemployment.

That is why full employment is also defined as a situation where there is no involuntary unemployment.

It needs to be noted that although full employment means a situation where all resources in the economy land, labor, capital, etc.—are fully employed but for simplifying meaning of full employment is restricted to labor market only, i.e., a situation where all able bodied persons who are willing to work at the prevailing wage rate find jobs.

Every economy in the world aims at achieving the level of full employment equilibrium where all its available resources are fully and efficiently employed because it leads to maximum level of output. This is conceptual meaning of the term ‘full employment’. In practice, the concept of full employment generally refers to full employment of labor force of a country.

Thus, when the entire labor force of a country is fully employed, it is termed as situation of full emplo5mient. Ke5mes defines it differently. According to him, when an increase in aggregate demand does not result in an increase in level of output and employment, it shows state of full employment.

In reality, full employment never exists because it is always possible to find some people unwilling to do any productive work though they may be fit physically and mentally. Also, some people remain temporarily without jobs over short period when they try to change employment from one job to another (called frictional unemployment) or when new machines are introduced or when a plant may break down (called structural unemployment).

Thus, frictional, structural and voluntary unemployment can co-exist within the state of full emplo3mient. In short, full employment does not stand for zero unemployment. A certain percentage of unemployment, say, up to 3%, is inevitable due to frictional and technological unemployment although there is no consensus among economists on this point.

Classical economists and Keynes view full employment in different ways. According to Classical, full employment is a situation where there is no involuntary unemployment. But according to Keynes, full employment indicates that level of employment where increase in aggregate demand does not lead to increase in level of output and employment.

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