Full employment refers to the level of employment in an economy where it operates at its potential output, with the unemployment rate equal to the natural rate of unemployment. This excludes cyclical unemployment or demand-deficient unemployment, but includes frictional unemployment (due to job transitions) and structural unemployment (due to skills or location mismatches).

• It does not mean zero unemployment, as some natural turnover and mismatches persist.
• All willing and able workers can find jobs, though short-term searching occurs.
• The economy achieves maximum sustainable output without accelerating inflation from excess demand.