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Is the phrase 'full employment' synonymous with the phrase 'the natural rate of unemployment'? Parkin, et al. (2010) seem to use these two terms interchangably in chapter 20, but looking up these two terms in the Oxford dictionary of economics (Black, Hashimzade & Myles 2009) shows two different meanings: Black, Hashimzade and Myles state that 'full employment' relates to the equilibrium point in the labour market, whereas 'the natural rate of unemployment' is a Keynesian concept which looks at the level of unemployment given constant inflation.

My interpretation of this is that 'full employment' is a classical concept, whereas 'the natural rate of unemployment' is not, because it seems as if the latter varies according to the rate of inflation (a nominal variable).

EDIT: The answers I have gotten so far are incorrect in that they say that 'full employment' means '100% employment'. This is incorrect because full employment actually takes into account frictional unemployment. I quote two dictionaries on the definition of full employment:

A situation where the labour market has reached a state of equilibrium, so that those in the active labour force who are willing and able to work at going wage rates are able to find work, and the only remaining unemployment is frictional unemployment.

(Black, Hashimzade & Myles 2009)

The following definition comes from The Economist

Jobs for all that want them. This does not mean zero unemployment because at any point in time some people do not want to work. Also, because some people are always between jobs, there will usually be some frictional unemployment. Full employment means that everyone who wants work and is willing to work at the market wage is in work. Most governments aim to achieve full employment, although nowadays they rarely try to lower unemployment below the nairu: the lowest jobless rate consistent with stable, low inflation.

The Economist goes on to define frictional unemployment as

That part of the jobless total caused by people simply changing jobs and taking their time about it, because they are spending time on job search or are taking a break before starting with a new employer. There is likely to be some frictional unemployment even when there is technically full employment, because most people change jobs from time to time.

In South Africa, unemployment is defined as those people who are actively seeking work, but who have not found work. Frictional unemployment seems to be a looser concept: the citizen wants work, but is happy to give up their previous job. It may be entirely possible for them to get work, just that it's taking them a while to secure their next contract. For this reason, one cannot say that an economy with a surplus of jobs is not at full employment.

References

Black, J, Hashimzade, N & Myles, G. 2009. Oxford dictionary of economics. 3rd edition. New York: Oxford University Press.

Parkin, M, Kohler, M, Lakay, L, Rhodes, B, Saayman, A, Schöer, V, Scholtz, F & Thompson, K. 2010. Economics: global and Southern African perspectives. Cape Town: Pearson.

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  • $\begingroup$ I'm not aware of any site policy on this, but I hate the "my interpretation of this" which I see on a lot of otherwise interesting questions here. What do they add? It's currently preventing me from upvoting your question :( $\endgroup$ – VicAche May 26 '15 at 14:30
  • $\begingroup$ @FooBar: Sorry, but given that the quotes are indirect I don't think that it is suitable to highlight them. $\endgroup$ – ahorn May 26 '15 at 14:38
  • $\begingroup$ @VicAche I think that's fine. It's showing personal effort. Not required (as in homework questions), but as long as they're not speculation/biased/opinions, I have no problem with them. OP: Yeah, I figured as well. It was readability versus "abuse of syntax". $\endgroup$ – FooBar May 26 '15 at 14:43
  • $\begingroup$ @VicAche: I think that we need to discuss our interpretations in order to understand the differences between the two definitions. I want to let you know what I am thinking so that you can directly address my own confusion. $\endgroup$ – ahorn May 26 '15 at 14:43
  • $\begingroup$ OP: this goes against a general answer to your question, IMO. I think a good answer should adress your concerns but not focus on them. @FooBar it's not that they are bad in this context, but I feel bad encouraging the practice, given all the propaganda we suffer on many other questions. I get your point tho, and ahorn gets his upvote ;) $\endgroup$ – VicAche May 26 '15 at 14:47
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Full employment is a more general term, which has much less implication than natural rate of employment. My experience reading a lot of economics papers is that careful authors do not mix the two concepts.

Stricto sensu, full employment should mean 100% of the workforce is employed. But when we are talking about periods such as the trente glorieuses, the term is often used to mean "very low unemployment", which Keynesian economists associate with natural rate of employment. Politicians will most certainly never use the later, while economists may not always be very careful about which one they use.

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    $\begingroup$ Are you saying that full employment is not a equilibrium position, but rather a position of 100% employment? I don't think that is possible because of frictional unemployment. $\endgroup$ – ahorn May 26 '15 at 15:03
  • $\begingroup$ @ahorn that's what full employment mean. No serious economist think it's possible, but it is still a subject of much hope... blogs.lexpress.fr/attali/2015/05/04/… $\endgroup$ – VicAche May 26 '15 at 15:05
  • $\begingroup$ Mainstream economists do accept non-cyclical unemployment in their description of full employment though, as stated in my answer. $\endgroup$ – VicAche May 26 '15 at 15:07
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Full employment is rather a deceiving term. It suuggest that 100% of the workforce is employed. However, there are so many reasons why this cannot be achieved and should not be achieved. Typical workforce would include people who are studying, people who have just got out of colleges, differently-abled etc who might not be supposed to be working in the way we assume they should. So at any point of time there will always exist some structural, frictional unemployment. Adjusting which we get the natural rate of employment or unemployment. Economists do not confuse between these two terms. You will find terms like potential output, zero output gap etc which refer to the same state and are technically more sound. Also, every level of output is an equilibrium point. The question is whether the economy is at its natural level of output or potential output or long term output level. At that level, natural employment level should prevail.

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  • $\begingroup$ Why do you say that the workforce includes people who are studying? Surely they are not included in the definition of the labour force? $\endgroup$ – ahorn Nov 29 '15 at 14:01
  • $\begingroup$ By studying I meant someone who are studying and looking for a job. Say people who are in the labor force age bracket and pursuing doctorates or earning some stipend. It is sometimes argued that people receiving stipends are in a kind of disguised employment. They should not be included in the workforce. My point is that you should not consider them in the labor force and calculate unemployment based on these figures. As they are studying and contributing to productivity is some other sense. And what about informal labor which is not regulated by any authority $\endgroup$ – Sub-Optimal Nov 29 '15 at 14:55
  • $\begingroup$ I think that people earning a stipend are employed - they are doing work. It does not matter that the employment is informal - they are still employed. Statistics South Africa defines employed persons as "those aged 15-64 years who, during the [survey] reference week, did any work for at least one hour, or had a job or business but were not at work (temporarily absent)." I think we can assume that by "work" they mean 'paid work,' because a student works at their studies but does not form part of the labour force by doing that. $\endgroup$ – ahorn Nov 30 '15 at 2:54

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