Hey there,
I'm not even doing the HSC this year (I've just gone into Year 12) so I might not be the most reliable source, but I remember I went over something similar in preparation for my prelim exams. If I recall correctly, if the economy is operating at the natural unemployment rate (or, NAIRU), you cannot decrease unemployment by cutting wages or simply increasing aggregate demand because it doesn't take cyclical unemployment into account—it only consists of those who are unemployed in a structural, hardcore or frictional way. With that being said, any attempt to increase labour market flexibility will reduce structural/frictional/hardcore unemployment and therefore, the unemployment rate will decrease. For example, a key factor affecting structural unemployment is the geographical and occupational mobility of labour. If labour flexibility increased, then they would be more mobile and this would help reduce unemployment caused by a mismatch of skills and geographical location.
For the second part, increased labour market flexibility would encourage the structurally unemployed, or hidden workers in general, to participate as they will re-enter the work force seeking work motivated by the fact that their skills may have some sort of use now. Additionally, demographics groups—such as young mothers—would be more inclined to participate—and therefore the participation rate would subsequently increase.
In retrospect, I'm not sure if telling you that the economy is operating at its natural rate of unemployment actually was that significant; I'm pretty sure that the impacts would be similar irrespective of that because you'd probably assume that anyway lol. I'm not too good at explaining things, so I hope this makes some sort of sense and was of some help nonetheless haha!
Good luck with your exams
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