What percentage range of unemployment is considered acceptable for full employment?

The range of 3-5% unemployment is widely regarded as acceptable for full employment, reflecting a healthy labor market. This level is not indicative of an economy operating without any unemployment at all, which is unrealistic; instead, it acknowledges that a certain percentage of unemployment is natural and even beneficial. This includes frictional unemployment, where individuals are temporarily between jobs, and structural unemployment, which arises from shifts in the economy.

A rate below 3% could suggest an overheating economy where job openings are scarce and competition for workers is extremely high, potentially leading to inflationary pressures. Conversely, a rate above 5% typically begins to signal underlying economic issues. Hence, the range of 3-5% is recognized by economists and policymakers as a benchmark for full employment, indicating that the economy is functioning well without significant labor market distress.