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8 May, 2015 - 11:22

The classical theory proposes that no involuntary unemployment will exist because an adjustment in the wage rate will assure that the unemployed will be hired again. In addition, the need of workers to buy goods will encourage them to accept work at even the lower wage rates.

If wages are flexible as the classical economists argue, then a decrease in wages does allow firms to hire more workers. Only those who are reluctant to work for lower wages would then remain unemployed.