Full employment is usually defined as any level of employment under 5%. Full employment means that all eligible workers regardless of skill level are in jobs. Economists believe that unemployment falls until it reaches the “natural rate” where everyone is employed and new hires only occur when people leave their current jobs for higher wages at other positions. The U.S economy has been in a state of full employment because the last unemployment numbers have come in at 4.7%. Usually full employment results in a period of inflation as a result of an increase in disposable income which drives up prices. The U.S economy is currently in a low inflationary period which contradicts the idea of full employment, but due to the recent recession, the current low inflation period can be seen as a result of that.
Full employment does not mean 0% employment, as previously mentioned, different types of unemployment can still exist. Structural unemployment is a result of a skills gap. Jobs are available but people do not have the necessary skills to fill these positions. This is more likely with large/sudden technological changes. Frictional unemployment is the amount of unemployment that results from workers being in between jobs but are still in the labor force. This is a result of misinformation and is seen as temporary unemployment. Finally, voluntary employment results from a person’s conscious effort to remain unemployed so they are no longer counted as being part of the workforce.
Because full employment does not translate to 0% unemployment, there is usually reason to believe that the unemployment numbers may be misstated. Unemployment numbers also seem understated from the changes in part-time and full-time employment. Firms hiring part-time workers do lower the unemployment rate, but these workers may not be happy in their current position and still want to work towards a full-time position that is not available. This questioning of the unemployment rate was even more prevalent in our latest presidential cycle where the current President stated that unemployment numbers were fake and too low, and even ventured to (falsely) state that unemployment may be as high as 42%. Unemployment may not be as low as 4.8% because of an increase in voluntary employment from the recent recession as well as structural unemployment stemming from the loss in manufacturing jobs and increase in technology heavy roles.