Editing Full employment (section)

== Unemployment  ==
{{More citations needed section|date=September 2020}}
{{Main|Unemployment#Definitions, types, and theories}}
[[William Beveridge]] defined "full employment" as where the number of unemployed workers equaled the number of job vacancies available (while preferring that the economy be kept above that full employment level in order to allow maximum economic production).

This definition allows for certain kinds of unemployment, where the number of unemployed workers equals the number of vacancies. Unemployment of this kind can take two forms: [[unemployment types#Frictional unemployment|frictional]] and [[unemployment types#Structural unemployment|structural]]. Frictional unemployment is where the unemployed are searching for the best possible jobs whilst employers are also searching for the best possible employees to fulfil those jobs. Structural unemployment exists when the skills and geographical locations of the unemployed workers do not correspond to the skill requirements and locations of the vacancies. In either case, there exists a job for every worker, and a worker for every job.

An economy with less than full employment in Beveridge's sense will have either  [[unemployment types#Real wage unemployment|classical unemployment]], [[unemployment types#Cyclical unemployment|cyclical unemployment]], or both. Classical unemployment results from the actual real wage rising above the equilibrium real wage, so that the quantity of labor demanded (and the number of vacancies) is less than the quantity of labor supplied (and the number of unemployed workers). This might occur because of [[Pareto-efficiency|inefficient]] interference in the market; for example, a minimum wage set above the equilibrium wage; but also because of [[market failure]], such as that caused by [[cartel]]s.

Under classical unemployment, the ways by which a return to Beveridge full employment can occur depend on the nature of the rise in wages- if it is only "nominal" wages that are rigid (failing to return to equilibrium), then real wages can decrease if prices rise relative to the rigid nominal wages. If nominal wages track price levels, however, then changes to prices will not affect the real wage- and thus employment will remain below Beveridge full employment.

Cyclical, deficient-demand, or Keynesian unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. If demand for most goods and services falls, less production is needed and consequently fewer workers are needed: if wages are [[sticky prices|sticky]] and do not fall to meet the new equilibrium level, unemployment results, because (as with classical unemployment) there are more prospective workers than there are vacancies.<ref name="Keynes 2007">{{cite book|title=The General Theory of Employment, Interest and Money |last=Keynes |first=John Maynard |year=2007 |orig-year=1936 |publisher=Palgrave Macmillan |location=Basingstoke, Hampshire |isbn=978-0-230-00476-4 |url=http://cepa.newschool.edu/het/essays/keynes/keynescont.htm |url-status=dead |archive-url=https://web.archive.org/web/20090316094655/http://cepa.newschool.edu/het/essays/keynes/keynescont.htm |archive-date=16 March 2009}}</ref>