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    Concept of Employment

    Uploaded by

    Farha Naz Khan
    Employment

    Copyright:

    © All Rights Reserved
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    Concept of Employment

    Uploaded by

    Farha Naz Khan
    12 views1 page
    Employment

    Copyright

    © © All Rights Reserved

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    DOCX, PDF, TXT or read online from Scribd

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    Employment

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    12 views1 page

    Concept of Employment

    Uploaded by

    Farha Naz Khan
    Employment

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Defining Full Employment

    Not only is a zero rate of unemployment unachievable in a dynamic economy where information is imperfect
    and workers and firms are heterogeneous, but it may in fact be undesirable. Later in this chapter we will find
    that some voluntary unemployment is a way in which individuals increase their personal earnings and is part of
    the process through which society enhances its real output and income. We also will observe that some
    involuntary unemployment is an unavoidable by-product of changes in tastes, population shifts, and
    technological advance. These changes create structural mis- matches between labor demand and supply and
    require adjustments in the allocation of labor resources from some occupations and regions to others.

    How much voluntary and unavoidable involuntary unemployment is there in the U.S. economy? What rate of
    unemployment constitutes full employment? In the 1960s economists concluded that a 4 percent unemployment
    rate was an achievable full- employment policy goal. But in the 1970s and 1980s, numerous factors led
    economists to boost this figure to 5.5 or even 6 percent. Two of the more important factors were (1) a changed
    composition of the labor force such that groups having high unemployment rates—teenagers, for example—
    constituted a larger fraction of the overall labor force and (2) evidence that rates of unemployment in the 4
    percent range were associated with accelerating rates of inflation.

    In the 1990s demographic changes tended to lower the unemployment rate as- sociated with full employment.
    Of greatest importance, youthful workers declined as a share of the labor force as baby boomers entered middle
    age. The growth of temporary help agencies and the improved information resulting from the Internet also
    lowered the unemployment rate. So, too, did the work requirements under the new welfare rules, which moved
    many people from the ranks of the unemployed to the ranks of the employed. Finally, some economists point
    out that the doubling of the U.S. prison population since 1985 removed relatively high-unemployment indi-
    viduals from the labor force and thus lowered the overall unemployment rate.

    Today the consensus appears to be that an unemployment rate of about 4.0 to 5.0 percent constitutes “practical”
    full employment and that attempts to reduce the rate through policies that increase aggregate demand will cause
    the existing rate of inflation to rise. This “practical” rate is sometimes called the equilibrium or natural rate of
    unemployment and is defined as (1) the unemployment rate at which there is neither ex- cess demand nor
    excess supply in the overall labor market or (2) the unemployment rate that will occur in the long run if
    expected and actual rates of inflation are equal.

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