What is actual employment output?

At any point in time, an economy has a possible level of output associated with full employment. Taking into account infrastructure, technology and level of workforce participation, "full employment output" is the level of GDP associated with a normal level of unemployment. This is not zero unemployment but a level of unemployment that has the average cyclical unemployment. In recent decades in the U.S., this has been about 5-6% unemployment.

This concept is a benchmark for the state of the economy, and we sometimes refer to "full employment output" as "potential output". This level is used for the Taylor Rule. (Search for answers about the Taylor Rule to learn more.) When GDP is below potential output, we think of the economy as needing greater stimulation. When GDP is above potential output, we think of the economy as "overheated" -- meaning that it might be nearing the "top" of the cycle and at risk for a recession.