Full employment does not mean 100% employment of the entire number of adult working population. There is an unemployment rate that is considered justified, or normal.
The unemployment rate is presented as the percentage of the unemployed able-bodied population, which does not include pensioners, students, prisoners, and citizens under 16 years of age, labor force, including persons employed in the military. At full employment, the unemployment rate is equal to the levels of frictional unemployment and structural in total, i.e. the natural unemployment rate, which is a complex of structural and frictional unemployment, while the unemployment rate is closely related to the stability of the economy, when the level of expected inflation corresponds to the actual level, and when the actual national product is at natural damage.
The dynamics of the unemployment rate, its changes are obtained by comparing unemployment rates in different years. The dynamics of unemployment is directly related to the dynamics of GNP. A 2% increase in the actual volume of GNP makes it possible to reduce the unemployment rate by 1% and, conversely, the unemployment rate will increase by about 1% as a result of a decrease in the actual volume of GNP by 2%. Therefore, unemployment is a natural state of the labor market, however, its fluctuations from the natural norm are allowed.
In cyclical unemployment, production capacities are not used to the full extent and the value of GDP, respectively, is less than that which would be at full employment.
Between the GDP gap and cyclical unemployment A. Ouken empirically found a direct, stable relationship. Ouken’s law shows the relationship between lost GDP and unemployment.
Levels of unemployment and employment are important macroeconomic indicators that determine the effectiveness of economic policies pursued by the state. State regulation is carried out by a set of legislative, economic, administrative and organizational measures that are aimed at achieving production efficiency through full employment. To increase the level of employment, it regulates the labor market and employment. Along with direct impact on the labor market, the state uses indirect methods, including monetary, tax and depreciation policies.
Statistics show that there is an inverse relationship between employment and inflation, in other words, this relationship extends to the general level of prices and unemployment. It is worth noting that inflation is inflation, in other words, it is a decrease in the purchasing power of a monetary unit, its depreciation. Price increases are observed if the growth rate of the money supply in circulation is higher than the GDP growth rate . The decline in GDP is accelerating the increase in the money supply. Inflation, in turn, negatively affects wages. A.U. Phillips revealed a pattern between the proportion of unemployed and the change in nominal wages. A.U. Phillips, studying the ratio of inflation and unemployment, found that between the magnitude of unemployment and the price growth rate there is an inversely proportional relationship. Her graphic image was called the Phillips curve. According to the Phillips curve, unemployment is high with negligible inflation, and with increasing inflation it decreases. Based on the Phillips curve, it is suggested that it is possible to reduce unemployment in the face of inflation or to increase unemployment by suppressing price increases. However, the real economy does not always reflect the results of this curve.
The general level of prices and unemployment is studied in:
a) micro - and macroeconomics;
b) normative and positive economic theory.