ABSTRACT
Twenty-five years ago, if you asked a representative economist what constituted full employment, the reply would likely have been that it corresponded to a situation with 4 percent unemployment. (The figure of 4 percent was the full-employment benchmark used in the study on the inflation-unemployment problem contained in Studies by the Staff of the Cabinet Committee on Price Stability, published by the U.S. Government Printing Office in 1969.) A more optimistic economist might even have suggested 3 percent unemployment. Another viable candidate for the definition of full employment might have been that proposed by Sir William Beveridge in his Full Employment in a Free Society (1944, p. 18) as a situation in which the number of job vacancies is greater than or equal to the number of unemployed workers. This is not fanciful speculation, but rather reflects thinking that was then current in the economics profession. Indeed, these very definitions were considered in James Tobin’s 1971 presidential address to the American Economic Association.
