overfull employment

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In Keynesian economics this is a level of employment that is above the natural rate of unemployment. Difficulty in filling job vacancies causes wages to rise, and labour scarcity results in shortages of goods and services, so prices rise. Overfull employment thus produces and accelerates demand inflation. Inflation leads to policy reactions designed to slow it; and the effect of inflation on expectations reduces the power of excess demand to elicit higher levels of real activity. Overfull employment is thus not permanently sustainable. Because of frictional unemployment and structural unemployment, overfull employment does not imply zero unemployment. The level of demand at which overfull employment sets in is itself a function of the organization of the labour market and social security system, the degree of monopoly in an economy, and the attitudes of its price- and wage-setters.

Subjects: Economics.

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