Fictional unemployment allows people to feel free enough to quit a job so they can look for a better one. That means both employers and employees will find a good fit and be more productive. If unemployment is too low, then the economy is considered to be over-heated. At that point, inflation becomes more of a concern.
What happens to wages during times of unemployment?
At times of unemployment, there is an increased supply of labor for employment in firms. In this scenario, there is a decline in wages as there is a number of people ready to work for lower wages. By this way, the industries have a positive effect and their variable cost would decline. 5. Surplus labor:
