Full employment.

In plain English

Full employment does not mean nobody is unemployed, because people are always between jobs or moving between industries. What it means is that cyclical unemployment, the kind caused by weak demand, has been eliminated, leaving only frictional and structural unemployment. Different institutions estimate the level differently, and the estimates move over time as the workforce changes. In the United States, maximum employment is half of the Federal Reserve's legal mandate, alongside stable prices. Because the target is an estimate rather than a fixed figure, reasonable people disagree about whether an economy has reached it.

01Why it matters

Whether officials believe the economy is at full employment shapes interest rate decisions, and that in turn affects whether employers keep hiring or start trimming.

02The math, step by step

Say an economy has 160 million people in the labor force and 6.4 million unemployed, a rate of 4 percent. If economists judge that roughly 4 percent reflects normal turnover and mismatch, this economy is at full employment even with millions out of work.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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