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(i) Define the term full employment - Leaving Cert Economics - Question a - 2016
Question a
(i) Define the term full employment. (ii) Discuss the possible economic benefits and economic challenges of full employment in an economy.
Worked Solution & Example Answer:(i) Define the term full employment - Leaving Cert Economics - Question a - 2016
Step 1
Define the term full employment.
Answer
Full employment refers to the situation in which all individuals who seek work can find employment at existing wage levels, essentially reaching the job market equilibrium. While it does not imply a zero unemployment rate, it indicates that the unemployment that exists is due to frictional factors, such as individuals transitioning between jobs, and that the economy is operating at its fullest potential.
Step 2
Discuss the possible economic benefits and economic challenges of full employment in an economy.
Answer
Economic Benefits
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Increased standard of living for citizens: Higher incomes contribute to enhanced purchasing power, increasing the ability of citizens to buy more goods and services, thus leading to an improved quality of life.
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Fall in social welfare: With more citizens employed, government expenditure on social welfare programs declines. This means the government can allocate more resources towards public services that benefit the overall economy.
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Increased aggregate demand and economic growth: Full employment stimulates demand for goods and services, which in turn drives economic growth and boosts the Gross National Product (GNP).
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Increased investment: The confidence in a fully employed economy encourages higher levels of investment from businesses, suggesting a positive outlook for future growth.
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Reduction in inequality and poverty: With a higher employment rate, the income level rises, which can significantly help in reducing poverty levels across the country.
Economic Challenges
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Possible skilled labour shortages: As businesses expand due to higher demand, they might face difficulties in finding enough skilled workers, potentially hampering productivity.
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Pressure on wage demands: A tight labor market can lead to higher wage demands from workers as companies compete to attract and retain talent, which can increase operational costs for businesses.
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Pressure on state infrastructure: Increased employment means more individuals relying on public services such as transportation and housing, which can put a strain on existing infrastructure if not managed efficiently.
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Loss of service quality: In industries that struggle to fill positions, the quality of service may deteriorate if workers are overstretched or inadequately trained.
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Inflationary pressures: With rising demand and increased wages, inflation may ensue, leading to higher costs of living and potentially impacting the balance of trade negatively due to increases in imported goods.