What is Full Employment – and Why the Definition Matters

by Philip Harvey*

Paper Presented at the International Post Keynesian Conference
University of Missouri at Kansas City
Sept. 17, 2016

*Professor of Law and Economics
Rutgers Law School
pharvey [at] rutgers.edu



In the wake of the dotcom boom in the late 1990s, a growing number of progressive economists began referring to 4% unemployment as “full employment” or close to it. Now, given the below 4% unemployment achieved prior to the Covid recession, that target is more likely to be identified as 3.5%. This article challenges these claims as misleading at best, and objectively deceptive given the failure of its proponents to acknowledge that their usage constitutes a rejection of Elegally obligatory, albeit unenforced policy mandates that equate the achievement of full employment with the realization of the right to work promoted by FDR and authoritatively recognized as an aspirtational human right under international law.

The origin of the full-employment concept—first as a theoretical category in Keynes’s General Theory, and then as a progressive public policy goal—is reviewed, and the question is asked whether 4% unemployment corresponds to either the Keynesian concept or the meaning accorded full employment by the public and in the law. The conclusion drawn is that it does not. It is argued that both Keynes’s usage of the term and the legal obligation imposed on the U.S. government under both international and domestic law to strive to achieve full (or maximum) employment is synonymous with the aspirational obligation to strive for the realization of the right to work defined and authoritatively recognized in the Universal Declaration of Human Rights and its progeny. Though always contested by conservative economists, that conception of the full employment goal was generally accepted within the economics profession (and certainly among progressive economists) until the stagflation crisis of the 1970s. That crisis precipitated a loss of faith in the Keynesian strategy for achieving full employment; and both economists and
policy makers effectively abandoned the full employment goal adjusted their usage of the term to correspond to some version of the NAIRU–without  acknowledging, let alone making clear that this constituted a rejection of definition of both the conventional and legal mandated definition of full employment.

It is not contested that economists lack the right to freely redefine the terms they use in their theoretical work; but two caveats are asserted to that license. First, to avoid confusing consumers of their theoretical work and their policy advocacy, it is argued that economists have an obligation to expressly acknowledge the divergence of their NAIRU-based definition of full employment from its conventional and legal meaning.

Second, while economists can freely redefine the terms they use in their theoretical work, they do not have the same license to change the meaning of terminology embodied in the law. Full employment has a legal meaning that was fixed in the 1940s and has been reasserted since then. For economists to claim that the their NAIRU-based conception of full employment is consistent with the full employment goal embodied in domestic and international full employment mandates is not just misleading, it is deceptive; and it’s a deception that has inhibited the development of economic policies that actually are capable of achieving full employment as Keynes conceived it and as it is conceived in international human rights law.