Full employment refers to economic circumstances in which all individuals who wish to work at a job that they are qualified for and at the wage rate prevailing in the labor market have jobs.
The concept is related empirically to surveys that measure the employment status of individuals who are working or have actively been searching for a job. These surveys are the basis of the unemployment statistics released by the governm Empirically, the “actively searching” component is often considered controversial, as discouraged workers who have given up searching are not represented in most widely reported unemployment statistics. The standard unemployment rate also fails to capture the presence of the “under-employed,” who hold jobs that do not take advantage of their full range of skills or who desire full-time work but are only able to find part-time jobs.
Economists often estimate that practical full employment corresponds to an unemployment rate of 3% to 5% (sometimes even higher), rather than actually reaching zero. Even if jobs are readily available, a small percentage of people may be unemployed at any point in time as they enter and exit the labor market or search for new employment opportunities (this is known as frictional unemployment).
The output produced with full employment is either referred to as potential output or full-employment output.
Related Terms: Potential Output