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Home » Determinants of the Level of National Income and Employment » Concepts of Employment and Full Employment


Concepts of Employment and Full Employment:


Meaning and Definition:


By employment is meant an engagement of a person in some occupation, business, trade or profession, etc. The nation of desiring to be employment can be explained by taking three established facts:


(i) Working hours per day.


(ii) Wage rate.


(iii) A man’s state of health.


If the normal working hours per day in an established firm are, say, seven and a health man has the capacity to work for nine hour, it cannot be said that the man is unemployed for two hours a day.


Similarly, if the wage rate in a particular occupation is $25 per day and a certain man demand $40 per day, then he would not be able to get employment. Finally, if a man is sick and is unable to work, he cannot be included in the rank of the unemployed.


The classical economists were of the view that in a free competitive economy, unemployment cannot exist for an indefinite period. If anyone remains jobless for a considerable period of time, then it can be only due to the fact that he is demanding more wages than that he is really worth for. The believed that in order to avoid this prolonged unemployment, the worker should accept wage cuts.


The classical economists, however, admitted that in short period unemployment can exist due to various reasons. For example, some unemployment may be caused by the introduction of machinery and other labor saving devices in the factory or it may be due to industrial disputes which lead to temporary unemployment among the factory workers. Some unemployment can also exist in factories for a part a year where the work is carried out seasonally.


For instance, sugar factory works only in winter and ice factory in summer. Some unemployment can also be due to the fact that unions are maintaining high level of wages. The employers do not find it advantageous to keep this at a higher level of wages .They retain a few competent workers and dispense with the services of less efficient ones.

The modern economists have, however, rejected the above view point given by the classical economists. They believe that in actual word, perfect competition dose not prevail. It is not necessary that by lowering the wage rate only, the economy can operate at the level of full employment.


During the great Depression of Thirties, the economy could not be lifted out even by lowering the wage rates. J.M. Keynes is of the opinion that unemployment can only take place when the current demand for goods and services is not efficient to absorb the available labor into different occupations.


Employment depends on spending of the whole income of the  people either on consumption or on investment goods. As the level of money income increases in a community, people tend to spend a smaller portion of their income on immediate consumption. So there will be a deficiency of return to entrepreneurs. They try to cut down the volume of employment they offer to the factors. This tendency may be counteracted if investment in capital goods expands sufficiently. But in a wealth country, there may be comparatively less new opportunities for investment. Hence the necessary increase in the volume of investment may be not made with the result that a portion of labor force is unable to find employment.

Relevant Articles:

» Psychological Law of Consumption
» Propensity to Consume
» Determinants of the Consumption Function
» Concept of Saving
» Concept of Propensity to Save/Saving Function
» Concept of Investment
» Concept of Marginal Efficiency of Capital (MEC)
» Factors on Which Marginal Efficiency of Capital Depends
» Concept of Employment and Full Employment
» Full Employment

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
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Balance of Payments
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Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money

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