Question

Why is there unemployment in a labor market with

flexible wages?

Short answer

This is caused due to various situations occurring in the economy.

Step-by-step solution

Step 1. Definition

Frictional unemployment is the period when a worker is chosen to leave their job in search of the new one and the workers join the workforce for the first time.

Structural unemployment is a type of involuntary unemployment which is caused due to the mismatch between the workers and skills required and this is also called the skill gap.

Step 2. Explanation

When wages are flexible yet there is some unemployment remains in the economy because of the existence of frictional and structural unemployment. Frictional and structural unemployment are inevitable and unavoidable forces.

Step 3. Example

Flexible wages take time to be adjusted in the economy and in that period of time the person is unemployed and unemployment exists. Another reason is in the economy workers are always looking for a better job and that period of joblessness is also coming under unemployment.