- in reality, 100% employment cannot be achieved as there will always be some eunmployment due to labour turnover, moevemtn between jobs and incapacity to work.
- jobs can be lost in industries that are declining and increasing in growing areas requiring people to be mobile and transfer between jobs.
- Full employment is shown when the AS curve becomes VERTICAL.
- there are also restrictions as skills needed by most firms are scarce
unemployment and inflation:
- there is some conflict between the objectives of full employment and stable prices and an inflation level of 2% CPI may mean that levels of employment would be lower than we like.
- falling unemployment is likely to lead to increased wages as workers will be in that position and firms will offer higher wages to retain and attract stronger workers. This will increase inflationary pressures, making UK less competitive.
- If inflation is kept to a level equal to or under our major trading partners, the UK will be competitive. This will lead to less unemployment as long as inflation is constant.
- Therefore, while in the short run, they are conflicting objectives, in the long term the cause of full employment may be better served by inflationary pressure at a steady rate.
- **This needs to be in cooperation with expanding the productive capacity**
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