What is the typical unemployment rate associated with full employment?

The typical unemployment rate associated with full employment generally falls within the range of 4%-6%. This is considered the natural rate of unemployment, which includes frictional and structural unemployment but excludes cyclical unemployment.

Frictional unemployment occurs when individuals are temporarily unemployed while transitioning between jobs or entering the workforce for the first time. Structural unemployment arises when there is a mismatch between the skills of the workforce and the demands of the job market. These two types of unemployment are seen as a normal part of a healthy economy and are accounted for even when the economy is performing well.

Setting full employment at 4%-6% reflects a balance where enough jobs are available for those seeking work while accounting for the natural turnover in the labor market. A rate below this range, like 2%-3% or 1%-2%, could suggest that the economy is overheating, potentially leading to inflationary pressures. Conversely, rates of 7%-8% would typically indicate economic distress or a recession, which are not characteristic of full employment.