Explanation:

After a negative shock, demand for goods and services suddenly reduces due to much lower aggregate demand (for e.g. recession). Lower demand needs fewer goods and thus fewer labour to produce the goods. This demand pulls down prices (if prices are flexible) and thus increases demand for goods and services for which more people need to be employed. If wages are flexible, they will reduce following a period of low demand. Firms would like to hire more labour if wages are lower. Thus, a combination of lower prices (that pushes up demand) and lower wages (that pushes up demand for employment by firms) leads to restoration of full employment in the economy. If the wages and prices are rigid, the abovementioned mechanism fails to operate and thus full employment is difficult to restore in the economy. The analysis presented above is of course simplistic and much more elaborated models are given in Economics to analyse them, but it serves our purpose here.