Answer to Question #98159 in Macroeconomics for annie

Question

According to mainstream economics, unemployment can exist, even when the labor market is at
equilibrium. How do the economists who are part of neoclassical school explain, the existence of
unemployment, at an instance when labor demanded and labor supplied are equal to each other?

Answer 1

The employment level at which the quantity of labor demanded equals the quantity supplied is known as the natural level of employment or full employment. However, economies will still experience unemployment even at full employment which arises from frictional and structural unemployment. Frictional employment arises from the period which employers take to find employees while structural employment occurs when the employees’ qualifications do not meet the firm’s requirements. Even if the labor demanded by firms equals the number of workers available, individuals without the necessary qualifications will find themselves unemployed.