Posted by michele on Monday, October 20, 2008 at 11:24pm.
Obviously, the two concepts are very close to each other. A subtle difference can arise due to different analyses. When we think of production potential or actual production, we generally want a measure of the total labor being used (employed). For example, a firm's production function is often described as Y=f(K,L) where K is some measure of capital and L is some measure of labor. Generally, we assume that L is being used efficiently.
When we talk about the unemployment rate, for example, we are counting people (sometimes households). Yes/no are you currently working. There is no distinction between working at ones highest potential or not.
I hope this helps.
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