Editing Unemployment (section)

===Unemployment under "full employment"===
{{Main|Full employment}}
[[File:NAIRU-SR-and-LR.svg|thumb|right|Short-run [[Phillips curve]] before and after Expansionary Policy, with Long-Run Phillips Curve (NAIRU). Note, however, that the unemployment rate is an inaccurate predictor of inflation in the long term.<ref name=chang/><ref name=hossfeld/>]]

In demands based theory, it is possible to abolish cyclical unemployment by increasing the aggregate demand for products and workers. However, the economy eventually hits an "[[inflation]] barrier" that is imposed by the four other kinds of unemployment to the extent that they exist. Historical experience suggests that low unemployment affects inflation in the short term but not the long term.<ref name=chang>Chang, R. (1997) [https://www.frbatlanta.org/filelegacydocs/ACFC7.pdf "Is Low Unemployment Inflationary?"] {{webarchive|url=https://web.archive.org/web/20131113212953/https://www.frbatlanta.org/filelegacydocs/ACFC7.pdf |date=13 November 2013}} ''Federal Reserve Bank of Atlanta Economic Review'' 1Q97:4–13</ref> In the long term, the [[velocity of money]] supply measures such as the MZM ("money zero maturity", representing cash and equivalent [[demand deposit]]s) velocity is far more predictive of inflation than low unemployment.<ref name=hossfeld>Oliver Hossfeld (2010) [https://web.archive.org/web/20131113215511/http://www.hhl.de/fileadmin/texte/publikationen/forschungspapiere/HOSSFELD_USMONEY_INFERWP_2010-4.pdf "US Money Demand, Monetary Overhang, and Inflation Prediction"] ''International Network for Economic Research'' working paper no. 2010.4</ref><ref>{{cite web|url=http://research.stlouisfed.org/fred2/series/MZMV |title=MZM velocity |publisher=Research.stlouisfed.org |date=20 December 2012 |access-date=1 March 2014}}</ref>

Some demand theory economists see the inflation barrier as corresponding to the [[natural rate of unemployment]]. The "natural" rate of unemployment is defined as the rate of unemployment that exists when the labour market is in equilibrium, and there is pressure for neither rising inflation rates nor falling inflation rates. An alternative technical term for that rate is the [[NAIRU]], the ''Non-Accelerating Inflation Rate of Unemployment''. Whatever its name, demand theory holds that if the unemployment rate gets "too low", inflation will accelerate in the absence of wage and price controls (incomes policies).

One of the major problems with the NAIRU theory is that no one knows exactly what the NAIRU is, and it clearly changes over time.<ref name=chang/> The margin of error can be quite high relative to the actual unemployment rate, making it hard to use the NAIRU in policy-making.<ref name=hossfeld/>

Another, normative, definition of full employment might be called the ''ideal'' unemployment rate. It would exclude all types of unemployment that represent forms of inefficiency. This type of "full employment" unemployment would correspond to only frictional unemployment (excluding that part encouraging the [[McJob]]s management strategy) and so would be very low. However, it would be impossible to attain this full-employment target using only demand-side [[Keynesian]] stimulus without getting below the NAIRU and causing accelerating inflation (absent incomes policies). Training programs aimed at fighting structural unemployment would help here.

To the extent that hidden unemployment exists, it implies that official unemployment statistics provide a poor guide to what unemployment rate coincides with "full employment".<ref name=chang/>