During a recession, people drop out of the labor force because they are unable to find a job. All else the same, this
A) increases the official U-3 unemployment rate.
B) decreases the official U-3 unemployment rate.
C) does not change the official U-3 unemployment rate.
D) increases the official U-3 unemployment rate and the labor force participation rate.

Question

Quizplus · Accepted Answer

When people drop out of the labor force because they cannot find a job, they are no longer counted as unemployed since the U-3 unemployment rate only considers those actively seeking employment. This decreases the U-3 unemployment rate because the numerator (number of unemployed) decreases while the denominator (labor force) also decreases, leading to a lower unemployment rate.

During a Recession, People Drop Out of the Labor Force