Full Employment Definition And

Full Employment Definition And Policy of Full Employment

Full Employment

Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time.

Policy of Full Employment

According to Keynes the level of employment depends on effective demand. Two measures can be taken to increase the effective demand.

1. Stimulating propensity to consume : 

Encouraging the tendency to consumption can increase the effective demand. Decrease in indirect taxes was one of the measures proposed by Keynes.

2. Increasing the Investment :

Professor Keynes emphasized on increase of investment rather than increase consumption. Investment can be of two types, Private and Government investment. in

▸ Private Investment :

a) According to Keynes there are two key factors for the private investment, marginal efficiency of capital and the rate of interest. To encourage private investment the prior should be high and the latter should be low.

Professor Keynes has suggested the following measures to achieve this goal.

i) Cheap Money Policy:

The Governments, through the Central Bank, lower the interest rates and facilitates the easy flow of money and credit.

ii) Taxation Policy:

Reducing the taxes on production encourages more investment.

iii) Anti-Monopoly Policy:

This increases the competition among the manufacturers

and thus more investors are willing to enter the market. iv) Policy of encouraging Foreign Investment:

This encourages the money from foreign land to be invested in the county's economy and increases employment.

‣ Government Investment :

Keynes, well aware of the difficulties in procuring private investment, suggested the Governments to take up investment in Public works, specially during recessions. He suggested to make this investment in the areas where private investors hesitated to invest.

Policy of Full Employment Criticism

▸ Fear of Inflation.

▸ Rise in Public Debt.

▸ Ineffectiveness of Cheap Money Policy.

▸ Infringement of Individual Independence.