The Search for the Product

The idea of product with full employment centers itself on the concept of full employment, with which economists indicate a situation in which everyone that wants a full time job can find it. Product with full employment is the product that is obtained in the economy when there is full employment in the working market.

Be careful to not confuse the product with full employment with the maximum product of the economy, which is the greatest quantity that would be produced if each one of us were forced to work as much as was humanly possible.

Don’t make the mistake either of believing that full employment means having an employment rate of zero. Even though anybody who wanted a job could have it, there is always certain amount of unemployment when some people leave a job voluntarily to look for another better one. During the search for another job, these people are counted as unemployed. Economists call this situation frictional unemployment, as if the waiting time in finding a better job was due to some type of friction that slows the process down.

As technology improves, the product with full employment Y* grows because a better technology means a full employment work force can obtain more product. But to simplify the analysis, economists generally ignore the growth tendency in the long run and only look if the actual product, Y, is bigger of better than its best estimative of Y* in that particular moment.

We are also going to see how the economy adjusts to situations in which the production is major or minor then the potential product in a given moment.

Economy tries to adjust itself spontaneously to Y* each time it presents a deviation presents itself. If this adjustment process were quick enough, we wouldn’t have to worry about economic cycles, recessions and unemployment. If the economy went back in a very brief time to Y*, the recessions would be too short to cause negative and dire consequences. Unfortunately, the process of natural adjustment can be very slow and as a result, the recessions can be very long and terrible.