I need help please with this economics question?

Question

Why do economists refer to the economy as "fully employed" even when there is measured unemployment as high as 4.5% -5 %?

Answer 1

The economy is constantly shifting, with some companies losing employees and others gaining.  If unemployment were zero, no company could expand.  So the small percentage who are out of work at any given time are the pool from which future expansion can take place.  Ideally, this should be small -- but not TOO small, as that would put severe upward pressure on wages.

Answer 2

Unemployment can be usefully divided into three flavors: frictional, structural, and cyclical.  Frictional unemployment includes workers who quit in search of a better job, and new entrants to the workforce who haven't found a job yet. When economic times are good, the amount of frictional unemployment often rises. Structural unemployment includes workers whose skills (or lack of them) make them unemployable  even when there are lots of unfilled jobs (a skill mismatch) . You can't get rid of this unemployment in a dynamic, changing economy. Cyclical unemployment is simply a result of lack of aggregate demand. If the economy grows faster, these workers get called back to their jobs.

So we say full employment to mean that there is no cyclical unemployment. The sum of structural and frictional could easily be 4-5% unemployment. If we try to drive unemployment below that level, we will get inflation without reducing unemployment much.

Answer 3

economists refer to the economy as fully employed because microeconomics states that demand and supply curve intersect .as the two curves intersect it means that the demand( i.e the no. of jobs demanded) is equal to the supply(i.e no. of people employed).

So as demand is equal to supply..there is full employment.

it was in 1929-1932 when the economists studied only MICROECONOMICS.

later they realised that when this concept is applied at a higher level i.e at an economy level it is untrue !!

as they can clearly see unemployment flooding.

So MACROECONOMICS was introduced.