Monday, August 24, 2009

Full Employment

To maintain the level of full employment is one of the chief objectives of the present day economics. But what does full employment precisely mean?

Employment would be full literally when every able bodied adult worked the number of hours considered normal or a fully employed person at the current return appears to be unattainable in private enterprise economics. For, under such economics quite a few have enough unearned incomes to be able to afford a life of well-paid idleness. Pigou accordingly defined full employment as one when “every body is in-fact employed”.

But even Pigovian full employment appears to be unattainable, for, at any given time, there is bound to be some seasonal and frictional unemployment. This led Keynes and many after hi,, to define full employment as the level of employment which falls short of Pigovian full employment by no more than the volume of permissible frictional and seasonal unemployment. The Economic and Social Council of the UN has accepted the same definition, for it required countries to fix the full employment standard, the purpose of such a standard being to provide a definition of full employment which is consistent with the smallest amount of unemployment that a country can reasonably expected to have after a minimum allowance which can be made for seasonal and frictional unemployment. Keynesian full employment is by definition, the maximum level of employment. But for purpose of practical policy it is necessary to reduce this concept to quantitative terms. It should be possible to say precisely when employment is less than full so that remedial action is called for.

The concept as defined above raises two quantitative problems namely, how to determine (1) the amount of employment sought by those who at the ruling wage rates wish to be employed and (2) inevitable minimum of frictional and seasonal unemployment. The first of these two depends upon (a) The number of people able and willing to work for wages and (b) The average number of hours of work for which each of them wants to be employed. The number of wage employment seekers depends upon the following; the size of the population of working age, the number who having sufficient un earned incomes choose to remain idle, the number who being in command of the requisite means of production, are self employed and prevailing wag-rate and other incentives provide.

Normally a part from the size of population of working age, these factors are likely to be more or less stable over short periods. For instance, the spam of life regarded as falling within the working age, while subject to variation as a result of changes in the period of schooling or in normal age for retirement consequent on changes in health standards and longevity is likely to remain unchanged in the short period.

More over, even when some of these factors change some what, the net quantitative affect may not be important. Higher wages for instance, may induce some of the older workers to post pone their retirement while these may impel some of the married women workers now that their husbands are better off, to relinquish their jobs. The net effect of a rise in wages wills not, this fore is quantitatively important. The same applies to other of these factors. The size of population of working age too, though not invariant is measurable as it changes according to definite trends; it follows that the number of wage seeking population can be determined with great measure of accuracy. And since the average number of hours of work which each wage. Employment seeker wants to put in is likely to be more or less stable in any short period; the total amount wage-employment sought is quite precisely measurable.

Similar observation may be made regarding the permissible allowance for seasonal and frictional unemployment. It will have to vary from season to season and from year to year, in accordance with the inevitable seasonal variations in employment and in the magnitude of the structural shifts in demand and production that together with immobility of labour cause frictional unemployment. It may therefore be better defined as range rather than as a precise figure. Since normally structural shifts in demand and production are unlikely to be violent or spasmodic and since in industrialized countries the incidence of seasonal unemployment is bound to be quite low, the allowance for frictional and seasonal unemployment needs to be very small. A UN study has suggested this allowance need to be beyond a range of 2.4 or 3.5 present of the available labour force.

The possibility of measuring the size of the available labour force and the inevitable minimum of frictional and seasonal unemployment makes full employment a determinate quantity. As suggested by UN study as a necessary step in the effective implementation of full employment policies, each country should fix a full employment target expresses in terms of permissible range of frictional and seasonal unemployment. Unemployment in excess of the fixed target would indicate a lapse from full employment calling for remedial action. The fixation of such target would help to reduce the chances of government inaction or vacillation in the face of growing unemployment. It may also help to maintain confidence among businessmen whose pessimism ordinarily plays notable part in magnifying downswing. There is however the danger of government acting a false scent. For act times, unemployment may exceed the largest due to causes other than insufficient demand. The danger may be minimised by allowing the government the discretion to disregard the signal if it has clear evidence that rise in employment is not due to demand deficiency.

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