Definitions of employment, unemployment and full employment

📚 Government and the macroeconomy – Employment and unemployment

1️⃣ What is Employment?

Employment means that a person has a job and is actively working. Think of it like a student who has a homework assignment and is actually doing it. In economics we measure it with the Employment Rate:

$E = \frac{\text{Number of Employed}}{\text{Labor Force}} \times 100\%$

• 🔹 Labor Force = Employed + Unemployed (those looking for work)
• 🔹 A higher rate means more people are working.

2️⃣ What is Unemployment?

Unemployment is when people are ready and able to work but can't find a job. Imagine a student who has finished their homework but is waiting for the next assignment. The Unemployment Rate is calculated as:

$U = \frac{\text{Number of Unemployed}}{\text{Labor Force}} \times 100\%$

1. 📌 Unemployed = those actively looking for work.
2. 📌 Not in the labor force (retired, students, etc.) are not counted.

3️⃣ What is Full Employment?

Full employment doesn’t mean zero unemployment. It means the economy is operating at its natural level, where the only unemployment left is frictional (people moving jobs) and structural (skills mismatch). The rest of the unemployment is considered “excess” and is a sign of an underperforming economy.